Presented below are conded financial statements adapted from those of two actual companies competing as the primary players in a specialty area of the food manufacturing and distribution Industry. ($ in millions, except per share amounts.) Balance Sheets Assets Metropolitan Republic Cash $ 309.3 $ 43.9 Accounts receivable (net) 538.7 445.0 Short-term investments 9.0 Inventory 587.6 746.2 Prepaid expenses and other current annet 249.6 598.7 Current assets $ 1685.0 $ 1,843. vroperty, plant, and equipment (net) 2.726.2 2,828.5 Intangibles and other asseta 321. 636.6 Total asseto $ 4,732.5 $ 5,308.9 Liabilities and Shareholders' Equity Accounts payable $ 603.3 $ 811.2 Short-term notes 338.1 667.4 Accruals and other current liabilities 710.2 641.5 Current liabilities $1,652.2 $ 2.120.1 Long-term debt 671.6 680.3 Deferred tax liability 498.6 726.7 242.0 221.1 Other long-term liabilities Total liabilities $ 3,064.4 $ 3.748.2 257.9 465.0 Common stock (par and additional paid-in capital) 2,593.9 Retained earnings 1.718.9 (1,183.7) (623.2) Less Treasury stock 1 + hinten ---Later .. $ 3,064.4 257.9 2,593.9 (1.183.7) $ 4,732.5 $ 3,748.2 465.0 1,718.9 (623.2) $ 5,308.9 Total liabilities Common stock (par and additional paid-in capital) Retained earnings Less: Treasury stock Total liabilities and shareholders' equity Income Statements Net salen Cost of goods sold Gross profit Operating expenses Intrast expense Income before taxes Income tax expense Net income Net income per share $ 5,821.0 (2,798.0) $ 3,023.0 (1,619.7) 97.8) $ 1,305.5 |(271.2) $ 1,033.8 $ 1.0 $ 7,882.2 (4,360.7) $ 3,521.5 (2,907.2) (49.6) 564.7 (21.1) $ 543.6 $ 8.4 Evaluate and compare the two companies by responding to the following questions. Note: Because comparative statements are not provided you should use year-end balances in place of average balances as appropriate Required: 1. For both companies, compute the ratios below. 2. Evaluate and compare the two companies Required 1 Required 2 For both companies, compute the ratios below. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.) Metropean Republic Return on Assets % % Profit Margin % % Asset Turnover times times Return on Equity % % Equity Multiplier Acid-Test Ratio Current Ratio Receivables Turnover times times times times Inventory Turnover Times Interest Earned times times Room2 Required 1 Required 2 Evaluate and compare the wo companies. Analysis Which of the two firms had greater earnings relative to resources available? Have the two companies achieved their respective rates of return on assets with similar combinations of profit margin and turnover? From the perspective of a common shareholder, which of the two firms provided a greater rate of return? Which company has made the most effective use of financial leverage? Of the two companies, which appears riskier in terms of its ability to pay short-term obligations? Which of the two companies manages their current assets more efficiently? From the perspective of a creditor, which company offers the most comfortable margin of safety in terms of its ability to pay fixed interest charges?
