Question
Given the following financial data for two firms in the computer industry. Balance Sheet (in thousands) ABC Company XYZ Company Cash $ 15 $ 10
Given the following financial data for two firms in the computer industry.
Balance Sheet (in thousands)
ABC Company XYZ Company
Cash $ 15 $ 10
A/R 50 90
Inventory 55 117
Plant/Equip. 150 240
Total assets 270 457
Current liab. 57 $101
Bonds payable 75 100
Common stock 50 70
Retained earnings 88 186
Total $270 $457
Income Statement
(In thousands)
ABC XYZ
Sales $500 $700
Cost of goods sold 300 475
Interest expense 7 8
Income before taxes 80 105
Net Income 32 42
Tax rate 40% 40%
Other Selected Data
Dividends per share $ 2.50 $2.50
Market Price year end $70 $80
Computer Industry (Averages for 19x7)
Current ratio 2.1 to 1
Acid-test (quick) 1.1 to 1
Inventory turnover 5 times
Debt/Equity 55%
Dividend Yield 2.2%
ROA 9%
ROE 15.5%
Compute the following ratios for each company: 1) current 2) acid-test (quick) 3) inventory turnover 4) TIE 5) debt-to-equity ratio 6) ROA and 7) ROE. Using the ratios and the industry data, present conclusions regarding the attractiveness of the two companies?
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