Question
The following summaries from the income statements and balance sheets of Neeko Inc. and Saxony Inc. are presented below. Income Statement For the year ended
The following summaries from the income statements and balance sheets of Neeko Inc. and Saxony Inc. are presented below.
Income Statement
For the year ended on Dec 31, 2019 | ||
For the year ended December 31, 2019 | ||
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| Neeko Inc. | Saxony Inc. |
Revenues | $10,697 | $133,500 |
Cost of sales | 6,313 | 87,300 |
Gross profit | 4,384 | 46,200 |
Operating expenses | 3,438 | 37,300 |
Operating income | 946 | 8,900 |
Interest expense | (43) | (100) |
Other Revenue / (Expenses) | (46) | 300 |
Income before taxes | 857 | 9,100 |
Income taxes | (383) | 3,900 |
Net income | $474 | $5,200 |
Balance Sheets as at December 31
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| Neeko Inc. | Saxony Inc. | ||
| 2019 | 2018 | 2019 | 2018 |
Current Assets |
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Cash and cash equivalent | $634 | $576 | $34,500 | $22,200 |
Accounts receivable, net of allowance | 2,101 | 1,804 | 15,500 | 14,700 |
Inventories | 1,515 | 1,374 | 27,200 | 28,400 |
Other current assets | 430 | 401 | 3,500 | 4,200 |
Total current assets | 4,680 | 4,155 | 80,700 | 69,500 |
Property, plant, and equipment, net | 1,621 | 1,614 | 5,700 | 7,000 |
Other long-term assets | 413 | 671 | 1,100 | 1,500 |
Total assets | $6,714 | $6,440 | $87,500 | $78,000 |
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Liabilities and Stockholders Equity |
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Current Liabilities |
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Current portion of long-term debt | $206 | $55 |
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Accounts payable | 648 | 930 | $8,500 | $6,600 |
Income taxes payable | 107 | 83 | 0 | 0 |
Accrued liabilities | 1,054 | 765 | 7,800 | 5,600 |
Total current liabilities | 2,015 | 1,833 | 16,300 | 12,200 |
Long-term liabilities | 708 | 768 | 2,500 | 2,600 |
Total liabilities | 2,723 | 2,601 | 18,800 | 14,800 |
Shareholders equity |
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Share Capital-ordinary | 1,000 | 1,000 | 2,300 | 2,300 |
Share Premium | 352 | 344 | 10,500 | 10,200 |
Retained earnings | 2,639 | 2,495 | 55,900 | 50,700 |
Total shareholders equity | 3,991 | 3,839 | 68,700 | 63,200 |
Total liabilities and shareholders equity | $6,714 | $6,440 | $87,500 | $78,000 |
Part A
Compute the following ratios for both companies for the year of 2019.
(a) Current ratio
(b) Acid-test ratio
(c) Accounts receivable turnover
(d) Inventory turnover
(e) Days' sales in inventory
(f) Days' sales uncollected
(g) Profit margin ratio
(h) Return on total assets
(i) Return on ordinary shareholders equity
(j) Debt-to-Equity Ratio
(Note: Round your answer to 1 decimal place)
Part B
(1) Which company do you consider to be the better short-term liquidity position and lower credit risk? Explain.
(2) Which company do you consider have better profitability?
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