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? _____