Ginger Adair is considering an investment in the common stock of a chain of retail department stores. She has narrowed her choice to two retail companies, Lewis Corporation and Ramsey Corporation, whose income statements and balance sheets are presented on the next page.

During the year, Lewis Corporation paid a total of $100,000 in dividends. The market price per share of its stock is currently $60. In comparison, Ramsey Corporation paid a total of $228,000 in dividends, and current market price of its stock is $76 per share. Lewis Corporation had net cash flows from operation of $543,000 and net capital expenditures of $1,250,000. Ramsey Corporation had net cash flows from operations of $985,000 and net capital expenditures of $2,100,000. 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 that there is no change in inventory.

Required
Conduct a comprehensive ratio analysis for each company, following the steps below. Compare the results. 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) Days' 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 year 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 year the
(a) Debt to equity ratio and
(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/earnings (P/E) ratio and
(b) Dividends yields.
6. Compare the two companies by inserting the ratio calculation from 1 through 5 in a table with the following column heading: Ratio Name, Lewis, Ramsey, 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 Lewis Ramsey 25,120,000 $50,420,000 Net sales Costs and expenses Cost of goods sold 12,284,000 $29,668,000 9,645,200 14216,400 4,868,000 $23,901,200 $48,752 400 1,218,800 1,667,600 456,000 830,800 1,211,600 Selling expenses Administrative expenses Total costs and expenses Income from operations Interest expense Income before income taxes Income taxes expense Net income Eanings per share 1,972,000 388,000 400,000 430,800 611,600 Balance Sheets Lewls Ramsey Assets Cash Marketable securities (at cost) Accounts receivable (net) Inventory Prepaid expenses Property, plant, and equipment (net) Intangibles and other assets Total assets $ 160,000 384,800 169,200 1970,800 2,506,800 228,000 13,104,000 289,600 $9,974,400 $18,653,200 406,800 1,105,600 1,259,600 108,800 5827,200 1,106,400 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 $ 688,000 1,145,200 800,000 146,800 4,000,000 1.200,000 7,137,200 4,224,000 $18,653,200 300,000 100,400 4,000,00 2.000,000 1219,600 1,666,400 9974400 Income Statements Lewis Ramsey 25,120,000 $50,420,000 Net sales Costs and expenses Cost of goods sold 12,284,000 $29,668,000 9,645,200 14216,400 4,868,000 $23,901,200 $48,752 400 1,218,800 1,667,600 456,000 830,800 1,211,600 Selling expenses Administrative expenses Total costs and expenses Income from operations Interest expense Income before income taxes Income taxes expense Net income Eanings per share 1,972,000 388,000 400,000 430,800 611,600 Balance Sheets Lewls Ramsey Assets Cash Marketable securities (at cost) Accounts receivable (net) Inventory Prepaid expenses Property, plant, and equipment (net) Intangibles and other assets Total assets $ 160,000 384,800 169,200 1970,800 2,506,800 228,000 13,104,000 289,600 $9,974,400 $18,653,200 406,800 1,105,600 1,259,600 108,800 5827,200 1,106,400 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 $ 688,000 1,145,200 800,000 146,800 4,000,000 1.200,000 7,137,200 4,224,000 $18,653,200 300,000 100,400 4,000,00 2.000,000 1219,600 1,666,400 9974400