50.1K

Verified Solution

Link Copied!

[The following information applies to the questions displayed below.] Summary information from the financial statements of two companies competing in the same industry follows.

	Barco Company			Kyan Company					Barco Company			Kyan Company
Data from the current year-end balance sheets								Data from the current years income statement
Assets								Sales	$	790,000		$	881,200
Cash	$	20,500		$	35,000			Cost of goods sold		592,100			642,500
Accounts receivable, net		36,400			59,400			Interest expense		7,500			10,000
Merchandise inventory		84,740			140,500			Income tax expense		15,185			24,327
Prepaid expenses		6,100			7,150			Net income		175,215			204,373
Plant assets, net		360,000			305,400			Basic earnings per share		5.48			5.21
Total assets	$	507,740		$	547,450			Cash dividends per share		3.81			3.93
Liabilities and Equity								Beginning-of-year balance sheet data
Current liabilities	$	66,340		$	93,300			Accounts receivable, net	$	26,800		$	55,200
Long-term notes payable		83,800			115,000			Merchandise inventory		65,600			105,400
Common stock, $5 par value		160,000			196,000			Total assets		448,000			402,500
Retained earnings		197,600			143,150			Common stock, $5 par value		160,000			196,000
Total liabilities and equity	$	507,740		$	547,450			Retained earnings		144,305			92,833

2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders equity. Assuming that each companys stock can be purchased at $90 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.) 2b. Identify which companys stock you would recommend as the better investment.

Answer & Explanation Solved by verified expert

See Answer