Agnes Ball is considering an investment in the common stock of a chain of retail department stores. She has narrowed her choice to two retail companies. Fast Corporation and Style Corporation, whose income statement and balance sheets are presented on the next page.

During the year, Fast Corporation paid a total of $50,000 in dividends. The market price pre share of its stock is currently $60. In comparison, Style Corporation paid a total of $114,000 in dividends, and the current market price of its stock is $76 per share. Fast Corporation had net cash flows from operations of $271,500 and net capital expenditure of $625,000. Style Corporation had net cash flows operations of $492,500 and net capital expenditures of $1,050,000. Information for prior years is not readily available. Assume that all notes payable are current liabilities and all bonds payable are long-term liabilities and all bonds payable are long-term liabilities and that there is no change in inventory.

Required
Conduct a comprehensive ratio analysis for each company, using the available information. Compare the result. Round percentages and ratios to one decimal place, and consider changes of 0.1 or less to be indeterminate.
1. Prepare a liquidity analysis by calculating for each company the
(a) Current ratio,
(b) Quick ratio,
(c) Receivable turnover,
(d) Day's sales uncollected,
(e) Inventory turnover,
(f) Days' inventory on hand,
(g) Payables turnover and
(h) Day's payable.
2. Prepare a profitability analysis by calculating for each company the
(a) Profit margin,
(b) Asset turnover,
(c) Return on assets, and
(d) Return on equity.
3. Prepare a long-term solvency analysis by calculating for each company the
(a) Debt to equity,
(b) Interest coverage ratio.
4. Prepare a cash flow adequacy analysis by calculating for each company the
(a) Cash flow yield,
(b) Cash flows to sales,
(c) Cash flows to assets, and
(d) Free cash flow.
5. Prepare an analysis of market strength by calculating for each company the
(a) Price/Earning (P/E) ratio and
(b) Dividend yields.
6. Compare the two companies by inserting the ratio calculations from 1 through 5 in a table with the following column headings: Ratio Name, Fast, Style, and Company with More Favorable Ratio. Indicate in the last column which company had the more favorable ratio in each case.
7. How could the analysis be improved if information about these companies' prior years wereavailable?

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Income Statements Fast Net sales Costs and expenses $12,560,000 $25,210,000 $14,834,000 7,108,200 2,434,000 Total costs and expenses $11,950,600 $24,376,200 $ 833,800 228,000 605,800 300,000 305,800 $10.19 Cost of goods sold 4,822,600 986,000 Selling expenses Administrative expenses S 609400 194,000 Income before income taxes 415,400 200,000 215,400 431 Income from operations Interest expense ー Income taxes expense Net income Earnings per share Balance Sheets Fast Assets Marketable securities (at cost) Accounts receivable (net) Inventory Prepaid expenses Property, plant, and equipment Inet Intangibles and other assets Total assets $ 80,000 192,400 84,600 985,400 629,800 1,253,400 114,000 2,913,600 6,552,000 144,800 $4,987,200 $9,326,600 203,400 552,800 54,400 553,200 Liabilities and Stockholders' Equity Accounts payable Notes payable Income taxes payable Bonds payable Common stock, $20 par value Additional paid-in capital Retained earnings Total liabilities and stockholders' equity $ 344,000 $ 572,600 400,000 73,400 2,000,000 2000,000 600,000 609,800 3,568,600 833,200 2,112,000 9,326,600 150,000 50,200 1,000,000 3 $4,987,200