Evaluate the financial statement data and the financial ratios
for these two firms and answer the...
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Finance
Evaluate the financial statement data and the financial ratiosfor these two firms and answer the questions. Your answers shouldbe based on the numbers given. Show your work to ensure credit.
Compute the Cash Conversion Cycle for both firms. Which firmhas the shorter CCC? Provide evidence for your answer.
Which of these two firms has the highest average annualEarnings Per Share ratio? Explain your answer (show your work)
If you were a bank lending officer specializing in short-termloans to businesses, which of the two firms would you rather dobusiness with? Explain your answer.
Firm A
Firm B
Income Statement
2016
2015
2014
2016
2015
2014
Revenues
58,811
63,740
49,853
350,052
347,379
349,894
Cost of Goods Sold
35,830
38,206
30,616
258,040
257,846
260,776
Gross Profit
22,981
25,534
19,237
92,012
89,533
89,118
Operating Expenses
6,611
6,116
4,923
72,752
69,315
66,727
Operating Income
16,370
19,418
14,314
19,260
20,218
22,391
Interest & Other Non-Oper Exp
368
350
267
1,090
1,105
1,251
Earnings Before Taxes
16,002
19,068
14,047
18,170
19,113
21,140
Income Tax
4,278
5,215
3,811
6,389
6,572
7,642
Net Income
11,724
13,853
10,236
11,781
12,541
13,498
Number of shares outstanding
18,000
18,000
18,000
25,000
25,000
25,000
Balance Sheet
Cash & Cash Equiv
47,409
45,133
29,134
11,397
11,287
12,929
Accounts Receivable
29,299
30,343
31,527
10,699
10,557
11,343
Inventory
12,133
12,355
18,199
22,328
23,290
24,426
Total Current Assets
88,841
87,831
78,860
44,424
45,134
48,698
Net Property, Plant, & Equipment
25,119
22,471
20,624
71,066
71,970
74,672
Intangible Assets
8,941
8,816
8,744
11,513
11,246
10,203
Total Assets
122,901
119,118
108,228
127,003
128,350
133,573
Accounts Payable
51,161
49,661
47,559
41,912
49,147
53,440
Short-Term Debt
11,605
10,999
4,308
33,341
17,095
16,738
Long-Term Debt
16,477
4,399
987
11,430
16,814
18,703
Shareholders Equity
43,658
54,059
55,374
40,320
45,295
44,692
Total Liabilities & Equity
122,901
119,118
108,228
127,003
128,351
133,573
Dupont Analysis:
Net Profit Margin
19.9%
21.7%
20.5%
3.4%
3.6%
3.9%
Total Asset Turnover
0.48
0.54
0.46
2.76
2.71
2.62
Equity Multiplier
2.82
2.20
1.95
3.15
2.83
2.99
Return on Equity
26.9%
25.6%
18.5%
29.2%
27.7%
30.2%
Current Ratio
1.42
1.45
1.52
0.59
0.68
0.69
Quick Ratio
1.22
1.24
1.17
0.29
0.33
0.35
Cash Ratio
0.76
0.74
0.56
0.15
0.17
0.18
Inventory Turnover (Sales basis)
4.8
5.2
2.7
15.7
14.9
14.3
Accounts Receivable Turnover
2.0
2.1
1.6
32.7
32.9
30.8
Fixed Asset Turnover
2.3
2.8
2.4
4.9
4.8
4.7
Debt Ratio
64%
55%
49%
68%
65%
67%
Answer & Explanation
Solved by verified expert
3.7 Ratings (476 Votes)
Cash conversion cycle Days of inventory Days of sales Days of payables 365 Accounts receivable turnover 365 Inventory turnover Sales Basis Days of payable sales basis So in order to calculate cash conversion cycle we need to calculate days of payables Other two ratios are
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