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How does company appear to be managing its inventory

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Reference no: EM131795090

Selected ratios for 2015 for two companies in the office supply industry are presented below. Answer the questions that follow about Walker and Diesel. Each question is worth 3 marks each.

Ratio

Puck

Stick

Industry Average

Asset turnover

2.6x

2.2x

2.5x

Average collection period

31 days

35 days

36 days

Cash current debt coverage

0.3x

0.10x

0.20x

Current ratio

1.7:1

3.0:1

1.6:1

Debt to total assets

50%

30%

50%

Earnings per share

$3.50

$0.40

Not available

Gross profit margin

23%

40%

27%

Inventory turnover

6x

3x

5x

Payout ratio

8%

22%

10%

Price-earnings ratio

29x

45x

38x

Profit margin

5%

4%

4%

Return on assets

12%

8%

10%

Return on common shareholders' equity

25%

13%

16%

Times interest earned

4.2x

8.6x

7.1x
  • Comment on how successful each company appears to managing its accounts receivable. Terms are net 30 for both companies.
  • How well does each company appear to be managing its inventory?
  • Which company is more solvent?
  • The gross profit for Puck is lower than Stick's and the industries. Provide two reasons why this would be the case?
  • Which company would investors believe would have greater prospects for growing earning?

Reference no: EM131795090

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