Question No.2

1 Two companies competing in the same industry are being evaluated by a bank that can lend money to 2 only one of them. Summary information from the financial statements of the two companies follows: min Pierce Company 880.200 632,500 13,000 24.300 210,400 41,200 54,200 Rowland Pierce Rowland Company Company Company 6 Data from the current year-end balance sheets: Data from the current year's income statements: 7 8 Assets 9 Cash 19,500 34,000 Sales 770,000 10 Accounts Rec, net 37,400 57,400 Cost of Goods sold 585,100 11 Current note receivable 9,100 7,200 Interest Expense 7,900 12 Mdse Inventory 84,440 132,500 Income tax expense 14,800 13 Prepaid expenses 5,000 6,950 Net income 162,200 14 Plant assets, net 290,000 304,400 Common shares outstanding 36,000 15 Total assets 445.440 542.450 16 Beginning of year balance sheet data: 17 Liabilities and Equity Accounts Receivable, net 29,800 18 Current liabilities 61,340 93,300 Current Notes Receivable 19 LT Notes Payable 80,800 101,000 Mdse Inventory 55,600 20 Common stock, 55 par value 180,000 206,000 Plant assets, net 287,100 21 Retained Earings 123,300 142,150 Total Assets 398,000 22 Total liabilities and equity 445,440 542.450 Common Stock 180,000 23 Retained Eamings 98,300 24 Required: 25 1 For both companies compute: 26 a. Current ratio d. Net Assets 27 b. Accounts Receivable tumover (includes notes) e. Debt ratio 28 c. Inventory tumover f. Times Interest Eamed 29 30 Identify the company you consider to be the better credit risk (evaluate liquidity and solvency) and explain why. 31 32 2 For both companies compute: 33 a. Asset Tumover d. Return on Equity 34 b. Return on Assets e. Profit margin 35 c. Earnings per share 36 Identify the company's stock you would recommend as the better investment and explain why. 37 107,400 178,900 382,500 206,000 93,600