Required information

Skip to question

[The following information applies to the questions displayed below.]

Summary information from the financial statements of two companies competing in the same industry follows.

	Barco Company	Kyan Company		Barco Company	Kyan Company
Data from the current year-end balance sheets			Data from the current years income statement
Assets			Sales	$ 770,000	$ 918,200
Cash	$ 22,000	$ 36,000	Cost of goods sold	595,100	636,500
Accounts receivable, net	39,400	51,400	Interest expense	7,600	14,000
Merchandise inventory	84,540	138,500	Income tax expense	14,800	25,349
Prepaid expenses	5,500	7,700	Net income	152,500	242,351
Plant assets, net	360,000	311,400	Basic earnings per share	4.77	5.13
Total assets	$ 511,440	$ 545,000	Cash dividends per share	3.82	4.01
Liabilities and Equity			Beginning-of-year balance sheet data
Current liabilities	$ 66,340	$ 94,300	Accounts receivable, net	$ 25,800	$ 57,200
Long-term notes payable	81,800	109,000	Merchandise inventory	61,600	113,400
Common stock, $5 par value	160,000	236,000	Total assets	428,000	402,500
Retained earnings	203,300	105,700	Common stock, $5 par value	160,000	236,000
Total liabilities and equity	$ 511,440	$ 545,000	Retained earnings	173,040	52,621

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 $85 per share, compute their (e) price-earnings ratios and (f) dividend yields.

2b. Identify which companys stock you would recommend as the better investment.