RATIO ASSIGNMENT

ACCTG 231 SPRING 2020

You have recently come into a little money and have decided to invest it. You have a fairly low tolerance for risk, so have narrowed your selection down to two, long-time stable companies:

• Proctor and Gamble, a company specializing in personal care, home care, and baby care products.
• General Mills, a company specializing in packaged foods.

In addition to the requirements presented here, you have been provided with the 2019 annual reports of both companies in order to prepare a ratio analysis of each company for its fiscal year 2019. Within each companys annual report are the Consolidated Statements of Earnings and the Consolidated Balance Sheets that you will need to compute the ratios.

Requirements

To receive full credit you must show your calculations and they are to be based on the formulas used in the textbook for this class (note: ratio formulas can vary slightly from source to source). For your convenience, a handy summary of ratio formulas is presented on pages 678-679 of the text.

Evaluate the LIQUIDITY of each company

1. Compute each companys 2019 Current Ratio, and Acid Test ratio (2 points).

2. Explain IN YOUR OWN WORDS (in one or two sentences) which company you rate higher on liquidity (1 points).

Evaluate the ASSET MANAGEMENT of each company

1. Compute each companys 2019 A/R Collection period, Average Sale period, Total Asset Turnover. For the A/R Collection period, assume all sales are on credit (3 points).

2. Explain IN YOUR OWN WORDS (in one or two sentences) which company you rate higher on Asset Management (2 points).

Evaluate the DEBT MANAGEMENT of each company

1. Compute each companys 2019 Times Interest Earned ratio and Debt to Equity ratio (2 points)

2. Explain IN YOUR OWN WORDS (in one or two sentences) which company you rate higher on Debt Management (2 points).

Evaluate the PROFITABILITY of each company

1. Compute each companys 2019 Gross Margin %, Net Profit %, Return on Total Assets and Return on Equity (for simplicity, assume the income tax rate is 30%). (4 points)

2. Explain IN YOUR OWN WORDS (in one or two sentences) which company you rate higher on Profitability (2 points).

Choose a company

1. Explain IN YOUR OWN WORDS (in two or three sentence) which company you would prefer to invest in and why. (2 points).