. Eastman Kodak Company and Canon, Inc. are competitors in the camera manufacturing industry. The following ratios and financial information have been compiled for these two companies: Financial ratios (2000) Kodak Canon Liquidity Current (times) Quick (times) Cash flow liquidity (times) Cash flow from operations (millions of $) 982 Activity Accounts receivable turnover (times)5.27 Inventory turnover (times)4.67 Payables turnover (times) Fixed asset turnover (times)2.452.36

**** *1.711.21

.87 2,6105.803.213.553.60 98 Total asset turnover (times) Leverage Debt ratio 54.13 Times interest earned (times) 12.44 16.39 Cash interest coverage (times) 9.8430.39 Cash flow adequacy (times) .401.29 Profitability Gross profit margin (%) 42.7043.28 Operating profit margin (%)15.828.84 Net profit margin (%)10.054.82 Cash flow margin (%7.02 12.46 Return on assets (%)9.904.73 Return on equity (%)41.04 10.33 Cash return on assets (%)6.91 12.24 Earnings per share 4.621.16 Closing stock price $39 per share $34 per share Required

a. Compare and evaluate the strengths and weaknesses of Eastman Kodak and Canon.

b. Calculate the price-to-earnings (PE) ratios for both firms Explain what a PE ratio tells an analyst. What could be the cause of the difference between Eastman Kodak's and Canon's PE ratios?