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Ratio analysis

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[The following information applies to the questions displayed below.] Summary information from the financial statements of two companies competing in the same industry follows.

	Iroquois Company	Percy Company		Iroquois Company	Percy Company
Data from the current year-end balance sheets			Data from the current years income statement
Assets			Sales	$ 770,000	$ 907,200
Cash	$ 20,000	$ 30,000	Cost of goods sold	587,100	636,500
Accounts receivable, net	34,400	51,400	Interest expense	9,000	19,000
Merchandise inventory	84,440	130,500	Income tax expense	14,800	25,045
Prepaid expenses	5,600	7,000	Net income	159,100	226,655
Plant assets, net	280,000	312,400	Basic earnings per share	3.79	5.78
Total assets	$ 424,440	$ 531,300	Cash dividends per share	3.77	3.93
Liabilities and Equity			Beginning-of-year balance sheet data
Current liabilities	$ 71,340	$ 90,300	Accounts receivable, net	$ 29,800	$ 51,200
Long-term notes payable	82,800	103,000	Merchandise inventory	59,600	111,400
Common stock, $5 par value	210,000	196,000	Total assets	388,000	412,500
Retained earnings	60,300	142,000	Common stock, $5 par value	210,000	196,000
Total liabilities and equity	$ 424,440	$ 531,300	Retained earnings	59,540	69,401

Ratio Analysis Problem 4

****ONLY ANSWER THIS***Required: 1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days sales in inventory, and (f) days sales uncollected. (Do not round intermediate calculations.) 1b. Identify the company you consider to be the better short-term credit risk. 2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on equity. Assuming that each companys stock can be purchased at $80 per share, compute their (e) price-earnings ratios and (f) dividend yields. 2b. Identify which companys stock you would recommend as the better investment.

Comparative Ratio Analysis - Essay

Analyze the data you calculated in problems #4 & #5 and prepare an essay on the companies you chose, Iroquois or Percy, that (1) have the better short-term position, and then which company (2) would be the better investment. In your own words, consider the following items as noted on the grading rubric in D2L.

Content & Development: Essay is comprehensive and discusses the importance for each measure of profitability. Major points are clearly stated and fully developed. Comparisons of calculated results between companies are noted.

Data Included: Essay includes the data calculated from problems #4 & #5 (ratios, not dollars). Data is included for both companies as support for statements made.

Format Length: The required length of essay should contain a minimum of 350 words. The essay should discuss the results for both companies.

Organization & Structure: Structure is clear and easy to follow, expressed in a professional manner as if presented to management or a peer group in a work setting. Paragraph transitions are logical and maintain the flow throughout the comments. Introduction and conclusion are present and logical. Comments are free from spelling and/or grammar errors, with complete sentences and correct punctuation.

You are not expected to know why the changes happened, just what has changed and how those changes affected different elements in the statements. See the example analysis in D2L. (Note: Prepare your essay in a word processor to ensure correct spelling, grammar and punctuation and the minimum word count. Then copy and paste in the box included here.)