Locate the Case 1-3: Comparative Analysis, Credit and Equity on page 61 of your text. Be sure to submit thoughtful and substantial answers to the questions following the case regarding the two companies analyzed. Provide the following information to the management team deciding on which bank stock to select:

1. Compute the current ratio, acid test ratio, accounts receivable turnover, inventory turnover, days sales in inventory, and days sales in receivables ratios for both companies.

2. Identify by this analysis the company that you consider the better short-term credit risk and explain why.

3. Compute the net profit margin, total asset turnover, return on total assets, and return on common stockholders equity for both companies.

4. Assume each company paid a cash dividend of $1.50 per share and that each companys stock can be purchased at $25 a share. Compute each companys price- earnings ratio and dividend yield.

5. Identify which companys stock you would recommend as the better investment and explain why.

CASE 13 Comparative Analysis: Credit and Equity Analysis

Two companies competing in the same industry are being evaluated by a bank that can lend money to only one of them. Summary information from the financial statements of the two companies follows:

CHECK Accounts receivable turnover, Sigma, 13.5 times

Two companies competing in the same industry are being evaluated by a bank that can lend money to only one of them. Summary information from the financial statements of the two companies follows: Datatech Sigma Company Company Datatech Sigma Company Company Data from the current year-end balance sheet: Assets .... Cash $ 18,500 $ 33,000 Accounts receivable, net ..... 36,400 56,400 Notes receivable (trade) .... 8,100 6,200 Merchandise inventory ...... 83.440 131,500 Prepaid expenses .......... 4,000 5,950 Plant and equipment, net .... 284,000 303,400 Total assets ................ $434440 $536,450 Data from the current year's income statement: Sales .... $660,000 $780,200 Cost of goods sold 485,100 532,500 Interest expense 6,900 11,000 Income tax expense ........ 12,800 19,300 Net income .............. 67,770 105,000 Basic earnings per share.... 1.94 2.56 Datatech Sigma Company Company Datatech Sigma Company Company Page 62 Liabilities and Stockholders' Equity Current liabilities ...........$ 60,340 Long-term notes payable ...... 79,800 Common stock, $5 par value ... 175,000 Retained earnings ............ 119,300 Total liabilities and equity ..... $434,440 $ 92,300 100,000 205,000 139,150 $536,450 Beginning-of-year data: Accounts receivable, net ...... $ 28,800 Notes receivable (trade) ....... 0 0 Merchandise inventory ........ 54,600 Total assets 388,000 Common stock, $5 par value ... 175,000 Retained earings ........... 94,300 $ 53,200 0 106,400 372,500 205,000 90,600 Two companies competing in the same industry are being evaluated by a bank that can lend money to only one of them. Summary information from the financial statements of the two companies follows: Datatech Sigma Company Company Datatech Sigma Company Company Data from the current year-end balance sheet: Assets .... Cash $ 18,500 $ 33,000 Accounts receivable, net ..... 36,400 56,400 Notes receivable (trade) .... 8,100 6,200 Merchandise inventory ...... 83.440 131,500 Prepaid expenses .......... 4,000 5,950 Plant and equipment, net .... 284,000 303,400 Total assets ................ $434440 $536,450 Data from the current year's income statement: Sales .... $660,000 $780,200 Cost of goods sold 485,100 532,500 Interest expense 6,900 11,000 Income tax expense ........ 12,800 19,300 Net income .............. 67,770 105,000 Basic earnings per share.... 1.94 2.56 Datatech Sigma Company Company Datatech Sigma Company Company Page 62 Liabilities and Stockholders' Equity Current liabilities ...........$ 60,340 Long-term notes payable ...... 79,800 Common stock, $5 par value ... 175,000 Retained earnings ............ 119,300 Total liabilities and equity ..... $434,440 $ 92,300 100,000 205,000 139,150 $536,450 Beginning-of-year data: Accounts receivable, net ...... $ 28,800 Notes receivable (trade) ....... 0 0 Merchandise inventory ........ 54,600 Total assets 388,000 Common stock, $5 par value ... 175,000 Retained earings ........... 94,300 $ 53,200 0 106,400 372,500 205,000 90,600