Problem below are current year financial statements for two

Assignment Help Financial Accounting

Reference no: EM13377898

Problem

Below are current year financial statements for two companies in the same industries and direct competitors. Both companies have been in operation approximately the same length of time.

	Company A	Company B
Balance Sheet
Cash	31,000	16,000
Accounts receivable (net)	29,000	24,000
Inventory	87,000	29,000
Property and equipment, net	125,000	394,000
Other assets	79,000	298,000
Total assets	351,000	761,000
Current liabilities	91,000	47,000
Long-term debt (5% interest)	62,000	58,000
Capital stock ($5 par)	145,000	505,000
Contributed capital in excess of par	18,000	103,000
Retained earnings	35,000	48,000
Total liabilities and stockholders' equity	351,000	761,000
Income Statement
Sales revenue (1/3 of sales on credit)	452,000	799,000
Cost of goods sold	(250,000)	(396,000)
Expenses (including interest and taxes)	(161,000)	(308,000)
Net income	41,000	95,000
Selected data from prior year
Accounts receivable (net)	16,000	33,000
Inventory	81,000	42,000
Property and equipment, net	110,000	375,000
Long-term debt	65,000	70,000
Other data
Market price per share at end of current year	$16	$13
Average income tax rate	25%	25%
Dividends declared and paid in current year	22,000	88,000

Required:

1) Prepare a schedule reflecting a ratio analysis of each company. Compute all ratios from the module for which you have enough data.

2) If an investor were considering an investment in one of these companies, which would you recommend based on this data? Explain your response.

Reference no: EM13377898

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