The following summaries from the income statements and balance sheets of Koutis Company and Brittania, Inc. are presented below. (1) For both companies for Year 2, compute the: (a) Current ratio (b) Acid-test ratio (c) Accounts receivable turnover (d) Inventory turnover (c) Days' sales in inventory (f) Days' sales uncollected Which company do you consider to be the better short-term credit risk? Explain. (2) For both companies for Year 2, compute the: (a) Profit margin ratio (b) Return on total assets (c) Return on common stockholders' equity Which company do you consider to have better profitability ratios? Koucis Company Consolidated Balance Sheets (in millions) Dec. 31 Year 2 Year 1 Assets Current assets: Cash and ensh equivalents Accounts receivable, net of allowance Inventories Other current assets Total current assets Property, plant, and equipment net Other long term assets Total assets S634d 2.101.11 1.514. 9 429. 4.679 1620 413.2 $6.213. 0 5 755 1.804.1 1 .373.8 401.3 4,154.7 16145 670.8 56.440.0 Liabilities and Stockholders' Equity 1 S 55.3 425.2 Current liabilities Current portion of long-term debt Notes payable Accounts payable Accrued liabilities Income taxes payable Total current liabilities Long term liabilities Total liabilities Stockholders' equity: Common stock Contributed capital in excess of par value Unearned stock compensation Accumulated other comprehensive loss Retained earnings Total stockholders' equity Total liabilities and stockholders' cquity $ 205, 75.4 572 1.054. 1 107.2 2.015 708. 2.723.2 765.3 83.0 1.832.21 7678 2.601.0 2.8 2. 589.0 (0.61 (239.7 3,6392 3.990.7 56.713. 538.7| (5.1) (1924) 3.4950 3.839.0 S6440.0 I Kouris Company Consolidated Statement of Income December 31, Year 2 in millions) Revenues Cost of sales Gross profit Operating expenses Operating income Interest expense Other revenues and expenses Income before tax Income taxes Income before effect of accounting change Cumulative effect of accounting change. net of tax Net income $10.697.0 6,313.6 4.383.4 3.137.6 1.245.8 429 79.9 1.123.0 382.9 740.1 266.1 S 474. Brittania, Inc. Consolidated Balance Sheets Dec. 31. 1 Dec. 31. 1 Year 2 Year 1 Assets Current assets: Cash and cash equivalents S345 S222 Accounts receivable net of allowance 1 5. 147 Inventories 27.2 Other current assets 3.5 Total current assets R0 6 9 Property, plant, and equipment, net 1 5 7 0 Other long term assets 1.11 Total assets S87.5 S78.0 8 .8 7 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities 1 Total current liabilities Long term liabilities Total linbilities Stockholders' equity: Common stock Contributed capital in excess of par value Uneamed stock compensation Accumulated other comprehensive loss Treasury stock Retained earnings | Total stockholders' equity Total liabilities and stockholders' equity 1 17.8 00 (1.3) (5.4 50. 68.1 87.4 . $133. 46.2 Brittania, Inc. Consolidated Statement of Income December 31, Year 2 (in millions) Revenues Cost of sales Gross profit Operating expenses Operating income Interest expense Other revenues and expenses Income before tax Income taxes Net income 37 10.11 0.3
