Question
Use the financial ratios of company A and company B to answer the questions below. Company A Company B Yr t+1 Year t Yr t+1
Use the financial ratios of company A and company B to answer the questions below.
| Company A | Company B |
| Yr t+1 Year t | Yr t+1 Year t |
Current ratio | 0.55 0.59 | 0.56 0.55 |
Accounts receivable turnover | 6.22 6.25 | 5.06 4.87 |
Debt to total assets | 40.5% 40% | 67.8% 65.9% |
Times interest earned | 8.80 30.6 | 5.97 6.33 |
Free cash flows (in millions) | ($3,819) $3,173 | $168 $550 |
Return on stockholdersequity | 7.7% 7.7% | 26.6% 23.3% |
Return on assets | 4.3% 4.3% | 8.9% 7.9% |
Profit margin | 10.5% 11% | 16.1% 13.7% |
Asset Turnover | 0.41 0.39 | 0.56 0.58 |
Earnings per share | 1.43 1.40 | 2.25 1.82 |
Price earnings ratio | 26.02 39.38 | 19.30 25.20 |
Net income* | $4,153 $4,013 | $4,220 $3,448 |
Cash provided by operating Activities (in millions) | $7,666 $11,055 | $8,590 $8,199 |
Which company collects cash faster from credit customer? Why? _____
Which company has better short-term debt-paying ability? Why? _____
Which company has better ability to pay interest? Why? _____
Which company has better solvency? Why? _____
Which firm use assets to generate revenue more effectively? Why? _____
Which company has better profitability? Why? _____
Which company use leverage more effectively? Why?
(i.e., bigger gap between ROA and ROE) _____
Which company had an increase in net income & a decrease in
operating cash flows, and a sharp drop in free cash flow?
(Indicators of cash flow problem and/or earnings manipulation) _____
Which company is a better choice for stock investment? Why? _____
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