Calculate the return-on-equity for each company

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Reference no: EM133132235

Question - Use the following information to answer


Company A

Company B

Total Assets

$51,226,000

$72,605,000

Total Liabilities

$26,792,000

$32,150,000

Current Assets

$27,164,000

$48,530,000

Current Liabilities

$20,632,000

$21,613,000

Total Short-Term Debt

$1,280,000

$675,550

Net Tangible Assets per $1,000 Debt

$5,210

$4,810

Inventory

$11,220,000

$17,775,000

Inventory Turnover

6.5

7.2

Operating Cashflow

$1,849,000

$3,649,000

Long-term Debt

$6,196,000

$8,814,000

Dividends per common share

$2.81

$1.25

Earnings per share

$4.25

$4.00

Gross Profit Margin

8.2%

8.6%

Interest Coverage

4.2

6.2

Current Share Price

$44.50

$36.75

Total # of Outstanding Common Shares

6,544,000

5,644,000

Required -

1. Calculate the percentage of retained earnings for each company (opposite of dividend payout).

2. Calculate the return-on-equity for each company.

3. Which company would appeal to a potential bond investor who is primarily interested in securing regular coupon payments and return of principal? Calculate/select 2 risk ratios in support of your answer.  Answer in sentence form.

4. The price-earnings ratio of each company is approximately the same. Explain 2 other factors that would be useful to an analyst in assessing which company offers better value.

Reference no: EM133132235

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