Question

Summary information from the financial statements of two companies competing in the same industry follows. Barco Кyan Company Company Data from the current year-end balance sheets Assets Cash 22,000 $ 35,000 Accounts receivable, net 33,400 54,400 Current notes receivable (trade) Merchandise inventory 9,900 8,800 84,640 142,500 Prepaid expenses 7,600 5,700 Plant assets, net 360,000 307,400 Total assets 515,640 $ 555,700 Liabilities and Equity Current 1iabilities 62,340 $ 101,300 Long-term notes payable Common stock, $5 par value Retained earnings 80,800 103,000 190,000 226,000 182,500 125,400 Total liabilities and equity 515,640 $ 555,700 Data from the current year's income statement Sales 770,000 $ 895,200 Cost of goods sold Interest expense 590,100 642,500 8,800 18,000 Income tax expense 14,800 24,714 Net income 156,300 209,986 Basic earnings per share Cash dividends per share 4.11 4.65 3.71 3.97 Beginning-of-year balance sheet data Accounts receivable, net 29,800 $ 56,200 Current notes receivable (trade) Merchandise inventory 61,600 113,400 Total assets 398,000 382,500 Common stock, $5 par value Retained earnings 190,000 226,000 167,180 94,858

Answer 1

Return on common stock holders equity = (Net income-preferred dividend)/average common stock holders equity

Barco = (156300-0)/(190000+182500+190000+167180)/2 = 42.84%

Kyan = (209986-0)/(226000+125400+226000+94858)/2 = 62.47%