RATIO ANALYSIS (STATEMENT ANALYSIS)

Assume the role of a banker and you have funds to lend to only one company.You have narrowed your choices to a company in the air conditioning & heating business - either Reitzel Heating or Klassen.You are given the following financial data for both companies on the following page.

For each company calculate the following (3 pts):

Current Ratio

Acid test ratio

Inventory turnover

Days' sales in average receivable

Debt ratio

Times interest earned ratio

Return on shareholders' equity

Earnings per share of common stock

Price Earnings Ratio

Debt to Equity Ratio

Required:

1.Prepare executive summary explaining which company you would loan the funds to.Justify your answer using the ratios that you calculated. (6 pts)

2.Would you consider becoming an equity holder for either company?Why or why not? (6 pts)

Selected income statement date for current year:

Selected income statement date for current year: Reitizel Klassen Net Sales (all on credit) 388,000 502,000 Cost of Goods sold 215,000 263,000 Income from Operations 82,000 145,000 Interest expense 19,000 Net Income 54,000 78,000 Selected balance sheet data at the beginning of the current year: Reitizel Klassen Current Receivables, net 44,000 56,000 Inventories 97,000 96,000 Total assets 259,000 270,000 Preferred shares, $10.00 (2000 shares) 20,000 Common Shares (10,000 shares) 10,000 (6000 shares) 12,500 Total Shareholder's Equity 126,000 133,000 Selected balance sheet data at the end of the current year: Reitizel Klassen Current Assets: Cash 25,000 21,000 Temporary Investments 22,000 16,000 Current receivables, net 42,000 46,000 Inventories 84,000 97,000 Prepaid Expenses 2,000 3,000 Total Current Assets 175,000 183,000 Total Assets 273,000 326,000 Total Current Liabilities 107,000 94,000 Total Liabilities 107,000 144,000 Preferred shares, $10.00 (2000 shares) 20,000 Common Shares (10,000 shares) 10,000 (6000 shares) 12,500 Total Shareholder's Equity 166,000 182,000 Market price per share of common stock 48 110 O