W poporo.docx - Word 136 LG4 LG5 P3-19 The relationship between financial leverage and profitability Pelican Paper Inc. and Timberland Forest Inc. are rivals in the manufacture of craft papers. Some financial statement values for each company follow. Use them in a ratio analysis that compares the firms' financial leverage and profitability. Item Pelican Paper Timberland Forest Total assets $10,000,000 $10,000,000 Total equity (all common) 9,000,000 5,000,000 Total debt 1,000,000 5,000,000 Annual interest 100,000 500,000 Total sales EBIT 25,000,000 25,000,000 6,250,000 6,250,000 Earnings available for common stockholders 3,690,000 3,450,000 a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other. 1. Debt ratio 2. Times interest earned ratio < 136 > hp 9:51 PM 3/15/2024 live - Google Search 5L4C7ZWQ3W3/pages/a421f62a55f6ac6bf770be7b7d21ac516f0d03e65?locale=&key=13083257982056385212152024 Summary: Financial Statements and Ratio Analysis LG3 P3-15 Interpreting liquidity and activity ratios The table below shows key financial data for three firms that compete in the consumer products market: Procter & Gamble, Colgate-Palmolive, and Clorox. All dollar values are in thousands. Procter & Gamble Colgate-Palmolive Clorox Sales $65,231 $15,195 $5,875 Cost of goods sold Receivables 32,967 6,072 3,233 4,729 1,411 514 Inventory 4,787 1,171 501 Total current assets 25,572 4,338 1,549 Total assets 117,033 12,123 4,568 Total current liabilities 28,891 3,305 2,037 134 a. Calculate each of the following ratios for all three companies: current ratio, quick ratio, inventory turnover, average collection period, total asset turnover. b. Which company is in the position of having greatest liquidity? c. Would you say that the three companies exhibit similar performance or quite different performance in terms of collecting receivables? Why do you think that might be? d. Which company has the most rapid inventory turnover? Which company appears to be least efficient in terms of total asset turnover? Are your answers to those questions a little surprising? If a company is best at inventory turnover and worst at total asset turnover, what do you think that means? LG4 P3-16 Debt analysis Springfield Bank is evaluating Creek Enterprises, which has requested a $4,000,000 loan, to assess the firm's financial leverage and financial risk. On the basis of the debt < 1 134 1 > A