PLEASE ANSWER ASAP

Given, the financial statements for Jones Corporation and Smith Corporation shown here: (25 Points)

a. Compute all ratios for Smith Corporation before answering. For the sake of time, I have completed the ratios for the Jones Corporation.

b. To which one would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why?

c. In which one would you buy stock? Why?

SMITH CORPORATION
Current Assets		Liabilities
Cash	$ 35,000	Accounts payable..................	$ 75,000
Marketable securities	7,500	Bonds payable (long-term)....	210,000
Accounts receivable	70,000
Inventory	75,000
Long-Term Assets		Stockholders Equity
Fixed assets	$500,000	Common stock......................	$ 75,000
Less: Accum. dep.	(250,000)	Paid-in capital........................	30,000
Net fixed assets*	250,000	Retained earnings..................	47,500
Total assets	$437,500	Total liab. and equity..........	$437,500

*Use net fixed assets in computing fixed asset turnover.

Income statement on next page

SMITH CORPORATION
Sales (on credit) ...................................................................	$1,000,000
Cost of goods sold.................................................................	600,000
Gross profit..........................................................................	400,000
Selling and administrative expense.....................................	224,000
Less: Depreciation expense.................................................	50,000
Operating profit....................................................................	126,000
Interest expense..................................................................	21,000
Earnings before taxes...........................................................	105,000
Tax expense.........................................................................	52,500
Net income...........................................................................	$ 52,500
Includes $7,000 in lease payments.

Solution: Calculate Ratios a.

	Jones Corp.	Smith Corp.
Profit margin	7.4%
Return on assets (investments)	18.5%
Return on equity	28.9%
Receivable turnover	15.63x
Average collection period	23.04 days
Inventory turnover	25x
Fixed asset turnover	3.57x
Total asset turnover	2.5x
Current ratio	1.5x
Quick ratio	1.0x
Debt to total assets	36%
Times interest earned	24.13x
Fixed charge coverage	13.33x

b. To which one would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why?

c. In which one would you buy stock? Why?