Question

The following information applies to the questions displayed below.) Summary information from the financial statements of two companies competing in the same industry follows. Kyan Company Barco Kyan Company Company Data from the current year-end balance sheets Assets Cash $ 22,000 $35,000 Accounts receivable, net 35,400 57,400 Current notes receivable (trade) 9.300 7.800 Merchandise inventory 84,440 128,500 Prepaid expenses 5,600 7,500 Plant assets, net 350,000 305,400 Total assets $506,740 $541.600 Barco Company Data from the current years income statement Sales $770,000 cost of goods sold 593.100 Interest expense 8,900 Income tax expense 14,800 Net income 153,200 Basic earnings per share 4.03 Cash dividends per share 3.79 $885.200 2.500 18.000 24,438 210, 262 5.10 4.03 Liabilities and Equity Current liabilities Long-term notes payable Connon stock, 35 par value Betained earnings Total liabilities and equity $ 65,340 $ 90,300 79,800 101,000 190.000 206,000 171,600 144,100 35067403541.600 Beginning-of-year balance sheet data Accounts receivable, not Current notes receivable (trade) Merchandise inventory Total assets Common stock, 55 par value Retained earnings $ 30,800 $ 54,200 57,600 1 ,400 408,000 392,500 190.000 206.000 162,420 100,074 Required: 1a. For both companies compute the (a) current ratio. (b) acid-test ratio, id accounts (including notes) receivable turnover, (d) inventory turnover (c) days' sales in inventory, and days' sales uncollected. (Do not round Intermediate calculations.) 1b. Identify the company you consider to be better short-term credit risk.

Answer 1

Current Ratio for Barco Company

Current Ratio = Total current assets / Total current liabilities

= [Cash + A/R + Current notes receivables + Inventory + Prepaid expenses] / Total current liabilities

= [$22,000 + $35,400 + $9,300 + $84,440 + $5,600] / $65,340

= $156,740 / $65,340

= 2.40

Current Ratio for Kyan Company

Current Ratio = Total current assets / Total current liabilities

= [Cash + A/R + Current notes receivables + Inventory + Prepaid expenses] / Total current liabilities

= [$35,000 + $57,400 + $7,800 + $128,500 + $7,500] / $90,300

= $236,200 / $90,300

= 2.62

Profit margin ratio for Barco Company

Profit margin ratio = [Net Income / Sales] x 100

= [$153,200 / $770,000] x 100

= 19.90%

Profit margin ratio for Kyan Company

Profit margin ratio = [Net Income / Sales] x 100

= [$210,262 / $885,200] x 100

= 23.75%