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

Exercise 10

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 paid cash dividends of $1.50 per share and each company's stock can be purchased at $25 per share, compute their ( e ) priceearnings ratios and ( f ) dividend yields. Round to one decimal place; for part b , round to two decimals. Identify which company's stock you would recommend as the better investment and explain why.