Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 46

Using Ratios to Compare Alternative Investment Opportunities
The 2013 financial statements for Armstrong and Blair companies are summarized here:

The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years, and each has had steady growth. One-third of both companies' sales are on credit. Despite these similarities, the management of each has a different viewpoint in many respects. Blair is more conservative, and as its president said, "We avoid what we consider to be undue risk." Both companies use straight-line depreciation, but Blair estimates slightly shorter useful lives than Armstrong. No shares were issued in 2013, and neither company is publicly held. Blair Company has an annual audit by a CPA but Armstrong Company does not. Assume the end-of-year total assets and net property and equipment balances approximate the year's average.
Required:
1. Calculate the ratios in Exhibit 13.5 for which sufficient information is available. Round all calculations to two decimal places.
TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares.
2. A venture capitalist is considering buying shares in one of the two companies. Based on the data given, prepare a comparative written evaluation of the ratio analyses (and any other available information) and conclude with your recommended choice.
TIP: Comment on how accounting differences affect your evaluations, if at all.