Fundamental Accounting Principles 22th Edition by John Wild ,Ken Shaw,Barbara Chiappetta

Exercise 6

Summary information from the financial statements of two companies competing in the same industry follows.

Required
1. For both companies compute the ( a ) current ratio, ( b ) acid-test ratio, ( c ) accounts (including notes) receivable turnover, ( d ) inventory turnover, ( e ) days' sales in inventory, and ( f ) days' sales uncollected. Identify the company you consider to be the better short-term credit risk and explain why. Round to one decimal place.
2. For both companies compute the ( a ) profit margin ratio, ( b ) total asset turnover, ( c ) return on total assets, and ( d ) return on common stockholders' equity. Assuming that each company's stock can be purchased at $75 per share, compute their ( e ) price-earnings ratios and ( f ) dividend yields. Round to one decimal place. Identify which company's stock you would recommend as the better investment and explain why.