Locate Case 1-3: Comparative Analysis, Credit, and Equity. Be sure to submit thoughtful and substantial answers to the questions following the case regarding the two companies analyzed. Provide the following information to the management team deciding on which bank stock to select: 1. Compute the current ratio, acid test ratio, accounts receivable turnover, inventory turnover, days' sales in inventory, and days' sales in receivables ratios for both companies.
2. Identify by this analysis the company that you consider the better short-term credit risk and explain why.
3. Compute the net profit margin, total asset turnover, return on total assets, and return on common stockholders' equity for both companies.
4. Assume each company paid a cash dividend of $1.50 per share and that each company's stock can be purchased at $25 a share. Compute each company's price- earnings ratio and dividend yield.
5. Identify which company's stock you would recommend as the better investment and explain why.
Comparative Analysis: Credit and Equity Analysis Two companies competing in the same industry are being evaluated by a bank that can lend money to only one of them. Summary information from the financial statements of the two companies follows: Two companies competing in the same industry are being evaluated by a bank that can lend money to only one of them. Summary information from the financial statements of the two companies follows:
Datatech Sigma Datatech Sigma
Company Company Company Company
Data from the current year- Data from the current
end balance sheet: year's income statement
Assets Sales 67.770 105,000
Cash $18,500 $33,000 Cost of goods sold 485,100 532.500
Accounts receivable,
net. 36.400 56,400 Interest expense 6,900 11,000
Notes receivable
(trade) 8,100 6,200 Income tax expense 12.800 19,300
Merchandise
inventory 83.440 131,500 Basic earnings per share 1.94 2.56
Prepaid expenses 4,000 5,950
Plant and equipment,
net 284,000 303,400
Total assets $434,440 $536,450
Datatech Sigma Datatech Sigma
Company Company Company Company
Beginning-of-year data:
$660,000 $780 200 Net income..
Liabilities and Stockholders'
Equity Accounts receivable, net $28,800 $53,200
Current liabilities $60,340 $92,300 Not receivable (trade) 0 0
Long-term notes
payable 79,800 100,000 Merchandise inventory 54,600 106,400
Common stock,
15 par value 175,000 205,000 Total assets 388,000 372,500
Retained earings 119,300 139,150 Common stock
$5 par value 175,000 205,000
Total liabilities and
equity $434.440 $536,450 Retained earnings 94,300 90,600