Selected ratios for the current year for two companies in the office supplies industry, Bureau Nouveau Inc. and Supplies Unlimited Corp., follow:

Instructions
(a) Both companies offer their customers credit terms of net 30 days. Indicate which ratio(s) should be used to assess how well the accounts receivable are managed. Comment on how well each company appears to be managing its accounts receivable.
(b) Indicate the ratio(s) used to assess inventory management. Which company is managing its inventory better?
(c) Supplies Unlimited's current ratio is higher than that of Bureau Nouveau. Identify two possible reasons for this.
(d) Which company is more solvent? Identify the ratio(s) used to determine this, and defend your choice.
(e) You notice that Supplies Unlimited's gross profit margin is higher and its profit margin lower than those of Bureau Nouveau. Identify two possible reasons for this.
(f) What is mostly responsible for Bureau Nouveau's higher return on assets: profit margin or asset turnover? Explain.
(g) What is mostly responsible for Bureau Nouveau's higher return on common shareholders' equity: return on assets or use of debt? Explain.
(h) Bureau Nouveau's payout ratio is lower than Supplies Unlimited's. Indicate one possible reason for this.
(i) What is the market price per share of each company's common shares?
(j) Which company do investors appear to believe has greater prospects for growing in future (for price appreciation)? Indicate the ratio(s) you used to reach this conclusion, and explain your reasoning.

Transcribed Image Text:

Asset turnover Average collection period Basic earnings per share Current ratio Days in inventory Debt to total assets Dividend yield Earnings per share Gross profit margirn Payout ratio Price-earnings ratio Profit margin Return on assets Return on common shareholders' equity Times interest earned Bureau Nouveau Supplies Unlimited 2.2 times 35 days $2.40 2.0:1 122 days 30.8% 0.5% $2.40 30.7% 19.2% 45 times 4.7% 10.3% 12.9% 8.6 times 2.6 times 31 days $3.50 61 days 45.5% 0.3% $3.50 22.6% 8.0% 29 times 5.5% 14.3% 26.1% 4.2 times