Problem 3 (20%) Presented below are condensed 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 Return on Assets Profit Margin Asset Turnover Assets Cash Accounts receivable (net) Short-term investments Inventories Prepaid expenses and other current assets Current assets Property, plant, and equipment (net) Intangibles and other assets Total assets Liabilities and Shareholders' Equity Accounts payable Short-term notes Accruals and other current liabilities Current liabilities Long-term debt Deferred tax liability Other long-term liabilities Total liabilities Common stock (par and additional paid-in capital) Retained earnings Less: Treasury stock Total liabilities and shareholders' equity Net sales Cost of goods sold Gross profit Operating expenses Interest expense Income before taxes Tax expense Net income Net income per share Income Statements Metropolitan Republic $ 274.3 $ 43.0 507.7 407.0 8.2 555.4 711.2 207.6 571.7 $ 1,545.0 $1,741.1 2,698.2 288.3 2,612.6 588.0 $ 4,531.5 $ 4,941.8 $ 564.9 $ 778.2 304.1 678.2 635.4 616.5 $ 1,547.2 $ 2,030.1 639.8 640.3 466.6 698.7 207.0 187.1 $ 2,860.4 $3,556.2 223.9 433.0 2,560.9 1,692.9 (1,113.7) (740.3) $ 4,531.5 $4,941.8 $ 5,787.0 $ 7,850.2 (2,825.0) (4,395.7) $ 2,962.0 $3,454.5 (1,653.7) (2,738.2) (81.8) (48.6) $ 1,226.5 $ 667.7 (299.7) (99.1) $ 926.8 $ 588.6 $ 1.5 $ 7.6 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 on the next page 2. Evaluate and compare the two companies in the space provided Metropolitan Republic % % % % times times Return on Shareholders' Equity % % Equity Multiplier Acid-Test Ratio Current Ratio Receivables Turnover Inventory Turnover Times Interest Earned times times times times times times 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?