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? (18 pts)