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	$ 760,000	$ 885,200
Cash	$ 21,500	$ 37,000	Cost of goods sold	595,100	642,500
Accounts receivable, net	37,400	57,400	Interest expense	9,100	10,000
Merchandise inventory	84,740	140,500	Income tax expense	14,608	24,438
Prepaid expenses	5,600	6,950	Net income	141,192	208,262
Plant assets, net	310,000	308,400	Basic earnings per share	3.72	4.82
Total assets	$ 459,240	$ 550,250	Cash dividends per share	3.81	4.01
Liabilities and Equity			Beginning-of-year balance sheet data
Current liabilities	$ 69,340	$ 104,300	Accounts receivable, net	$ 30,800	$ 55,200
Long-term notes payable	79,800	115,000	Merchandise inventory	61,600	109,400
Common stock, $5 par value	190,000	216,000	Total assets	398,000	382,500
Retained earnings	120,100	114,950	Common stock, $5 par value	190,000	216,000
Total liabilities and equity	$ 459,240	$ 550,250	Retained earnings	123,688	79,920

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.