Presented below are the financial statements of two companies that are identical in every respect except the method of valuing their inventories. The method of valuing inventory is LIFO for the LIFO Company and FIFO for the FIFO Company.

Required
Using the two sets of financial statements, calculate the ratios below for each firm. Ignore the effect of taxes (i.e., assume zero taxes for both firms).
1. Current ratio 

2. Inventory turnover 

3. Inventory-on-hand period 

4. Return on assets 

5. Total debt to total assets 

6. Long-term debt to shareholders’ equity 

7. Gross profit margin ratio 

8. Return on sales 

9. Return on shareholders’ equity 

10. Earnings per share (assume 2 million shares outstanding)

Based on the above ratios, which company represents the better investment opportunity? The better acquisition opportunity? The better lending opportunity? Why?

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Comparative Income Statements Sales..... Less: Cost of goods sold. Gross profit....... Less: Operating expenses Net income before tax Comparative Balance Sheets Assets Cash... Receivables FIFO Company LIFO Company $20,000,000 9,200,000 10,800,000 (5,000,000) $ 5,800,000 FIFO Company $20,000,000 11,280,000 8,720,000 (5,000,000) $ 3,720,000 LIFO Company $ 3,000,000 6,000,000 $ 3,000,000 6,000,000 Inventory. Total current assets Total noncurrent (net). Total Liabilities and Equities Current liabilities.... Noncurrent liabilities.. Total liabilities.... Total shareholders' equity Total 3,800,000 1,720,000 12,800,000 10,720,000 20,000,000 20,000,000 $32,800,000 $30,720,000 $ 4,200,000 9,000,000 13,200,000 $ 4,200,000 9,000,000 13,200,000 19,600,000 17,520,000 $32,800,000 $30,720,000