E18.3. Ranking Firms on Risk (Medium) Below are income statements and balance sheets for three firms. Rank these firms on what you perceive to be the relative riskiness of their equity from these statements. What features in the statements determined your ranking? All numbers are in millions of dollars. All three firms face a statutory tax rate of 36 percent.

FIRM A Income Statement Sales Cost of sales Labor and materials Depreciation 5542 $345 434 108 Seling expenses Administrative expenses 9 26 Research and development expenses 24 Net interest expense Income before taxes Income taxes Income after taxes FIRM A Balance Sheet Assets Liabilities and Equity Cash $7 Accounts payable $ 42 Short-term investments 4 Long-term debe 104 Accounts receivable 27 54 Inventory Property, plant, and equipment 215 Common equity 171 $317 5317 Sales Cost of sales FIRM B Income Statement $796 47 637 159 $590 19 Labor and materials Depreciation Selling expenses Administrative expenses Research and development expenses Net interest expense Income before tarees Income taxes Income after taxes 544 **

FIRM B Balance Sheet Assets Liabilities and Equity Cash $ 5 Accounts payable 5 36 Short-term investments 47 Long-term debt 104 Accounts receivable 78 Inventory 192 Property, plant, and equipment 159 Common equity 341 $481 $481 Sales Cost of sales Labor and materials Depreciation Selling expenses Administrative expenses Research and development Net Interest experse Income before taxes Income income after taxes FIRM C Income Statement $649 5454 ***** 519 1301 FIRM C Balance Sheet Assets Cash Liabilities and Equity $6 Accounts payable $ 39 Short-term investments 10 Long-term debt 210 Accounts receivable 66 Inventory 97 Property, plant, and equipment 195 Common equity $374 $374