Ratio Assignment Fact Scenario: Two companies that operate in the same industry as competitors are being evaluated by a bank. that can lend money to only one of them. Summary information from the financial statements of the two companies follows. Data from the current year-end balance sheets: Rich Poor Company Company Assets Cash $18,700 $33,000 Accounts Receivable 34,500 Notes receivable (trade) 8,500 Merchandise inventory 88,600 53,800 6,000 119,700 Prepaid expenses 4,200 Plant and equipment, net 284,100 Total assets $438,600 6,200 288,600 $507,300 Liabilities and Equity Current Liabilities $60,300 $94,700 Long-term notes payable 80,000 100,000 Common Shares (See Note) 175,000 180,000 Retained Earnings 123,300 132,600 Total liabilities and equity $438,600 $507,300 Data from the current year's income statements: Sales $625,000 $780,500 Cost of goods sold 372,500 465,200 Interest expense 8,000 11,000 Income tax expense 13,800 21,900 Net income 75,300 95,800 NOTE: Rich Company had 17,500 shares outstanding at both the beginning and end of the year. Poor Company had 18,000 shares outstanding both at the beginning and end of the year. Assignment Steps: 1) Calculate current ratios, quick ratios, average collection periods, and inventory turnovers for the two companies. Then identify the company that you consider to be the better short-term credit risk and explain why. 2) Calculate profit margins (use net income), total asset turnovers, returns on total assets, and returns on equity. Identify which company's shares you would recommend as the better investment and explain why