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 company's stock can be purchased at $25 a share. Compute each company's price- earnings ratio and dividend yield. 5. Identify which company's stock you would recommend as the better investment and explain why. CASE 1-3 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: 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 Data from the current yearend balance sheet: Cash ................ Accounts receivable, net..... Notes receivable (trade) ..... Merchandise inventory ..... Prepaid expenses ........ Plant and equipment, net.... Total assets. $ 18,500 $ 33,000 36.400 56,400 8,100 6,200 83.440 131,500 4,000 5,950 284,000 303,400 $434,440 $536,450 Datatech Sigma Company Company Data from the current year's income statement Sales $660,000 $780 200 Cost of goods sold .. ....... 485,100 532.500 Interest expense. 6,900 11,000 Income tax expense 12.800 19,300 Net income.. 67.770 105,000 Basic earnings per share.... 1.94 2.56 Datatech Company Sigma Company Sigma Company Page 62 Liabilities and Stockholders' Equity Current liabilities ...........$ 60,340 Long-term notes payable ...... 79,800 Common stock, 15 par value ... 175,000 Retained earings ........... 119,300 Total liabilities and equity ....$434.440 $ 92,300 100,000 205,000 139,150 $536,450 Datatech Company Beginning-of-year data: Accounts receivable, net......$ 28,800 Not receivable (trade)....... 0 Merchandise inventory ........ 51,600 Total assets ..................... 388,000 Common stock $5 par value ... 175,000 Retained earnings ........... 94,300 $ 53,200 0 106,400 372,500 205,000 90,600
