Question A3 Venture Company and Pioneer Company are competitors within the same industry. Their financial statements are listed as follows: Balance sheet as at Dec 31st 2019 Venture $ Pioneer Current assets Cash Accounts receivable Inventories Total current assets Fixed assets (net) Total assets 22,900 38,100 70,200 131,200 1,057,600 1,188,800 35,400 47,200 39.200 121,800 1,287,000 1.408,800 92,700 782,900 875,600 68,400 787,800 856,200 Current Liabilities Long-term liabilities Total liabilities Stockholders' equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 40,000 273,200 313,200 1.188.800 300,000 252,600 552,600 1.408.800 Income Statement for the year ending Dec 31st 2019 Venture Pioneer $ $ Net sales 1,507,900 1,990,000 Cost of goods sold (301,580) (417,900) Operating expenses (952,820) (1,272,100) Income before interest and tax 253,500 300,000 Interest (84,000) (90,000) Income tax (74,500) (81,000) Net income 95.000 129,000 Additional information for year ending 2019 Venture Pioneer Number of common shares outstanding 40,000 30,000 Required: (a) Compute the following missing ratios for each company. Present your answers by copying the table below onto your answer sheet. Express your final answers correct to two decimal places (while taking full decimal places for all the middle steps). (15 marks) Venture Pioneer Liquidity: Current Ratio 1.78 Quick Ratio 0.66 10.66 Assets efficiency: Inventory Turnover Days' Sales in Receivables Total Asset Turnover Financing: Equity Multiplier Times Interest Earned Operating profitability: Profit Margin (%) 6.30% 6.48% Return on Assets (%) Return on Equity (%) (b) For each of the two companies, give brief comments (within 30 words) on their liquidity performance. (2 marks) (c) For each of the two companies, give brief comments (within 70 words) on their assets management efficiency. (3 marks) (d) For each of the two companies, give brief comments (within 100 words) on their financing capital structure. (4 marks) (e) For each of the two companies, give brief comments (within 50 words) on their profitability performance. (2 marks) (1) Compute the return on equity (ROE) of both companies using the Du Pont Identity formula. Explain the difference in ROE between the two companies and advise which company has a better return on its equity (ROE) and which company will be more likely to incur a higher financial risk (within 150 words). (7 marks) (g) Which of the two companies, as judged by all the above analysis, would you choose to invest? Explain briefly (within 50 words). (2 marks)
