managerial accounting
Problem 1 You are presented with the nancial documents for Siam Red Company shown below: a. As a nancial advisor, compare both companies (Siam Red, and Burma Amrub) and industry data Compute all ratios before answering. b. In which one would you buy stock? Why? SIAM RED COMPANY Current Assets Liabilities Cash ............................................ $ 20,000 Accounts payable .................. $100,000 Accounts receivable .................... 80,000 Bonds payable (longterm) 80,000 Inventory ..................................... 50,000 LongTerm Assets Stockholders' Equity Fixed assets ................................. $500,000 Common stock ...................... $150,000 Less: Accumulated depreciation (150,000) Paid-in capital ....................... 70,000 Net xed assets* ......................... 350 000 Retained earnings .................. 100 000 Total assets .............................. $500,000 Total liab. and equity ........ $500,000 Sales (on credit) .................................................................................... $1,250,000 Cost of goods sold ................................................................................ 750 000 Gross prot .......................................................................................... 500,000 Selling and administrative expense .................................................... 257,000 Less: Depreciation expense ................................................................ 50 000 Operating prot .................................................................................... 193,000 Interest expense .................................................................................... 8 000 Earnings before taxes ............................................................................ 185,000 Tax expense .......................................................................................... 92 500 Net income ........................................................................................... $ 92,500 *Use net xed assets in computing xed asset turnover. BURMA ANIRUB CORPORATION Current Assets Liabilities Cash ............................... $ 35,000 Accounts payable ................. $ 75,000 Marketable securities ...... 7,500 Bonds payable (longterm) 210,000 Accounts receivable 70,000 Inventory ........................ 75,000 LongTerm Assets Stockholders' Equity Fixed assets .................... $500,000 Common stock ...................... 33 75,000 Less: Accurn dep. (250,000) Paidin capital ....................... 30,000 Net xed assets* ............ 250 000 Retained earnings ................. 47 500 Total assets ................ 437,500 Total liab. and equity .......... 437,500 *Use net xed assets in computing xed asset turnover. BURMA ANIRUB CORPORATION Sales (on credit) ................................................................................... $1,000,000 Cost of goods sold ................................................................................ 600 000 Gross prot .......................................................................................... 400,000 Selling and administrative expense .................................................... 224,000 Less: Depreciation expense ............................................................... 50 000 Operating prot .................................................................................... 126,000 Interest expense .................................................................................... 21 000 Earnings before taxes ........................................................................... 105,000 Tax expense ......................................................................................... 52 500 Net income ........................................................................................... $ 52,500 Industry Ratios Industry Prot margin ................................. 5.75% Return on assets ............................. 6.90% Return on equity ............................ 9.20% Receivables turnover ..................... 4.35X Inventory turnover ......................... 6.50X Fixedasset turnover ...................... 1.85X Total-asset turnover ....................... 1.20X Current ratio .................................. 1.45X Quick ratio ..................................... 1.10X Debt to total assets ......................... 25.05% Interest coverage ............................ 5.35X Compare the ratios to the industry data that is given. Discuss the weak points, strong points, and What you think should be done to improve each company's performance
