Presented below are condensed financial statements adapted from those of two actual companies competing as the primary players in a specialty area of the food manufacturing and distribution industry ($ in millions, except per share amounts). 

Required: 

Evaluate and compare the two companies by responding to the following questions. Because comparative statements are not provided you should use year-end balances in place of average balances as appropriate. 

1. Which of the two firms had greater earnings relative to resources available? 

2. Have the two companies achieved their respective rates of return on assets with similar combinations of profit margin and turnover? 

3. From the perspective of a common shareholder, which of the two firms provided a greater rate of return?

4. Which company is most highly leveraged and which has made most effective use of financial leverage? 

5. Of the two companies, which appears riskier in terms of its ability to pay short-term obligations? 

6. How efficiently are current assets managed? 

7. From the perspective of a creditor, which company offers the most comfortable margin of safety in terms of its ability to pay fixed interest charges?

Transcribed Image Text:

BalanceSheets Metropolitan Republic Assets: $ 179.3 $ Cash 37.1 Accounts receivable (net) 422.7 325.0 Short-term investments 4.7 635.2 Inventory Prepaid expenses and other current assets 466.4 134.6 476.7 Current assets 1,203.0 1,478.7 2,608.2 Property, plant, and equipment (net) Intangibles and other assets 2,064.6 210.3 464.7 Total assets $4,021.5 $4,008.0 Liabilities and Shareholders' Equity Accounts payable $ 467.9 $ 691.2 Short-term notes 227.1 557.4 Accruals and other current liabilities 585.2 538.5 Current liabilities 1,280.2 1,787.1 535.6 Long-term debt Deferred tax liability Other long-term liabilities 542.3 384.6 610.7 104.0 95.1 Total liabilities 2,304.4 3,035.2 Common stock (par and additional paid-in capital) Retained earnings Less: Treasury stock 144.9 335.0 2,476.9 1,601.9 (904.7) (964.1) Total liabilities and shareholders' equity $4,021.5 $4,008.0 Income Statements $5,698.0 (2,909.0) $7,768.2 (4,481.7) Net sales Cost of goods sold Gross profit Operating expenses Interest expense 2,789.0 3,286.5 (1,743.7) (56.8) (2,539.2) (46.6) Income before taxes 988.5 700.7 Income tax expense (394.7) (276.1) Net income $ 593.8 $ 424.6 Net income per share $ 2.40 $ 6.50