Summary information from the financial statements of two companies competing in the same industry follows.

Barco Kyan Barco Kyan Company Company Company Company Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $770,000 $880,200 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,500 $ 34,000 Cost of goods sold . . . . . . . . . . . . . . . . . 585,100 632,500 Accounts receivable, net . . . . . . . . . . . . . 37,400 57,400 Interest expense . . . . . . . . . . . . . . . . . . . 7,900 13,000 Current notes receivable (trade) . . . . . . . 9,100 7,200 Income tax expense . . . . . . . . . . . . . . . . . 14,800 24,300 Merchandise inventory . . . . . . . . . . . . . . . 84,440 132,500 Net income . . . . . . . . . . . . . . . . . . . . . . $162,200 $210,400 Prepaid expenses . . . . . . . . . . . . . . . . . . . 5,000 6,950 Basic earnings per share . . . . . . . . . . . . . . $ 4.51 $ 5.11 Plant assets, net . . . . . . . . . . . . . . . . . . . . 290,000 304,400 Total assets . . . . . . . . . . . . . . . . . . . . . . . $445,440 $542,450 Beginning-of-year balance sheet data Liabilities and Equity Accounts receivable, net . . . . . . . . . . . . . $ 29,800 $ 54,200 Current liabilities . . . . . . . . . . . . . . . . . . . $ 61,340 $ 93,300 Current notes receivable (trade) . . . . . . . 0 0 Long-term notes payable . . . . . . . . . . . . . 80,800 101,000 Merchandise inventory . . . . . . . . . . . . . . . 55,600 107,400 Common stock, $5 par value . . . . . . . . . . 180,000 206,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . 398,000 382,500 Retained earnings . . . . . . . . . . . . . . . . . . 123,300 142,150 Common stock, $5 par value . . . . . . . . . . 180,000 206,000 Total liabilities and equity . . . . . . . . . . . . . $445,440 $542,450 Retained earnings . . . . . . . . . . . . . . . . . . 98,300 93,600.

Required 1 For both companies compute the

(a) current ratio,

(b) acid-test ratio,

(c) accounts (including notes) receivable turnover, (d ) inventory turnover,

(e) days’ sales in inventory, and ( f ) days’ sales uncollected.
Identify the company you consider to be the better short-term credit risk and explain why.
2 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 company paid cash dividends of $3.80 per share and each company’s stock can be purchased at $75 per share, compute their

(e) price-earnings ratios and ( f ) dividend yields. Identify which company’s stock you would recommend as the better investment and explain why.AppendixLO1