The information below is excerpted from the financial statements of two companies. Use this information to answer the questions 1-4.

(in $ million)	Company A	Company B
Net revenues	117958	41296
Net income	3526	1188
Total current assets	18672.5	29564.5
Total assets	42494	37433
Total current liabilities	12708.5	15370
Total liabilities	24671	32030
Total stockholders equity	17823	5403.5

Footnote: Approximately 98% of Company Bs account receivables are from unpaid balances carried by customers using the store credit card.

Is one company significantly more profitable than the other? Justify using appropriate ratio(s). (10 points)

Which company creates higher value for its shareholders? Explain using appropriate ratio(s). (Stockholder equity can be used as a proxy for shareholders) (10 points)

3. Which company is better positioned to pay its bills in the short-run (i.e., is more liquid and less risky in the short-term)? Justify using appropriate ratio(s). (10 points)

3. What are the steps to analyze financial statements strategically? What else do you need to know in order to interpret the financial performance of these companies? (10 points)

4. How can you control for size when comparing the financials of the 2 firms from the same industry? Create this statement for company A and B. (10 points)

5. Use this information for New Tech Company to answer the following question. You may (or may not) need to fill in missing information.

NEW TECH COMPANY

Income Statement	2010	2011	2012
Sales	100	110	120
Cost of goods sold	50	51	52
Depreciation	20	20	20
General, sales & admin expenses	70	65	60
Taxes	10	10	10
Net Income
Balance Sheet	2010	2011	2012
Current Assets	40	45	40
Property, plant & equipment	60	55	60
Total Assets
Current Liabilities	40	40	35
Long-Term Liabilities	10	10	15
Equity	50	50	50
Total Liabilities & Equity

INDUSTRY AVERAGE RATIOS

	2010	2011	2012
CR (Current Ratio)	1.5	1.5	1
DR (Debt Ratio)=TL/TA	60%	60%	60%
TAT (Total Asset Turnover)	2	2.2	2.5
PM (Profit Margin)	4%	5%	6%
Sales Growth	3%	2.50%	3%
Profit Growth	5%	25%	20%

Which of the following items characterize New Tech Company? (It may be more than one option).

EXPLAIN (and report your calculations) (10 points)

Low debt & unprofitable

High debt & unprofitable

Decreasing profit margin

Increasing sales with a decreasing sales growth rate

All the above characterize New Tech Company