Question

Summary Information from the financial statements of two companies competing in the same industry follows. Sales Barco Kyan Company Company Data from the current year-end balance sheets Assets Cash $ 19,500 $ 34,000 Accounts receivable, net 37,400 57.400 Current notes receivable (trade) 9,100 7,200 Merchandise inventory 84,440 132,500 Prepaid expenses 5,000 6,950 Plant assets, net 290,000 304,400 Total assets $445,440 $542,450 Barco Kyan Company Company Data from the current years income statement $ 770,000 $880,200 Cost of goods sold 585,100 632,500 Interest expense 7,900 13,000 Income tax expense 14,800 24,500 Net income 162,200 210,400 Basic earnings per share 4.51 5.11 Cash dividenda per share 3.81 3.93 Liabilities and Equity Current liabilities Long-term notos payable Common stock, S5 par value Retained earnings Total liabilities and equity $ 61,340 $ 93,300 80.800 101.000 180.000 206.000 123,300 142,150 $445,440 $542,450 Beginning-of-year balance sheet data Accounts receivable, net Current potes recevable trade Merchandio inventory Total assets Common stock, SS par value $ 29,800 $ 54,200 0 55,600 107,400 398,000 382,500 180,000 206,000 98,300 93,600 Retained

Answer 1

Solution:

	Formula	Barco Company	Kyan Company
Return on common shareholders	(Net income - Preference divided)/ Average common shareholders equity	(162,200-0)/180,000 = 90.11%	(210,400-0)/206,000 = 102.14%
Price earnings ratio	Market price (MPS) / Earnings per share (EPS)	8.43/4.51 = 1.87 times	8.45/5.11 = 1.65 times
Dividend yield	Divided per share (DPS) / Market price (MPS)	3.81/8.43 = 45.19%	3.93/8.45 = 46.51%

Market price = (Common shareholders equity + Retained earnings) / Common number of shareholders

Barco Company = (180,000+123,300)/(180,000/5)

= 303,300/36,000 = 8.43

Kyan Company = (206,000+142,150)/(206,000/5)

= 348,150/41,200 = 8.45