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Question(s) / Instruction(s):

Data from the current year-end balance sheets

Ryan Company                 Priest   Company

  Assets :                                                

  Cash                                                                                    $19,000                                 $32,000 

  Accounts receivable, net                                           34,400                                   56,400 

  Current notes receivable (trade)                           9,300                                    8,600 

  Merchandise inventory                                              84,340                                   134,500 

  Prepaid expenses                                                         5,700                                    7,000 

  Plant assets, net                                                            310,000                                 311,400 

  Total assets                                                                      $462,740                              $549,900 

                                                                 

  Liabilities and Equity:                                                  

  Current liabilities                                                            $64,340                                 $103,300 

  Long-term notes payable                                          79,800                                   111,000 

  Common stock, $5 par value                                    200,000                                 226,000 

  Retained earnings                                                        118,600                                 109,600 

 Total liabilities and equity                                         $462,740                              $549,900

 

Data from the current year’s income statement               

Ryan Company                 Priest   Company

Sales                                                                      $800,000                              $914,200  

Cost of goods sold                                          584,100                                 648,500  

Interest expense                                            9,000                                    13,000  

Income tax expense                                      15,377                                   25,238  

Net income                                                       191,523                                 227,462

Basic earnings per share                              4.79                                        5.03  

                                                                 

                                                                 Beginning-of-year balance sheet data:

Accounts receivable, net                              $30,800                                 $53,200  

Current notes receivable (trade)                             0                                              0  

Merchandise inventory                                63,600                                   115,400  

Total assets                                                       458,000                                 402,500  

Common stock, $5 par value                      200,000                                 226,000

Retained earnings                                          112,300                                 90,600  

Required:

1.1          For both companies compute the

(a) current ratio,

(b) acid-test ratio,

 (c) accounts receivable turnover, (including notes)

(d) inventory turnover,

(e) days’ sales in inventory, and

(f) Days’ sales uncollected.

1.2)   Identify the company you consider to be better in managing short-term credit risk.

 

2.1          For both companies compute the

(a) profit margin ratio,

(b) total asset turnover,

 (c) return on total assets,

(d) return on common stockholders’ equity.

Assuming that each company paid cash dividends of $4.2 per share and each company’s stock can be purchased at $75 per share, compute their

(e) price-earnings ratios

(f) Dividend yields

2.2)        identify which company’s stock you would recommend as the better investment.

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