Reference no: EM132539771

Your boss has asked you to evaluate the performance of two competitors. You have obtained the following data on the competitors and on the industry. The company's operates on a 365 day per year schedule

                                                             Company A                 Company B                       Industry

Asset turnover                              1.0 times                      1.0 times                  0.9 times

Cash total debt coverage                     30%                            20%                        n/a

Current ratio                                       0.7:1                        1.1:1                          0.8:1

Debt to total assets                                56%                          72%                        81%

Earnings per share                                   $0.98                          $1.37                      $1.08

Gross profit margin                                   74%                             60%                      58%

Inventory turnover                               6.8 times                            7.9 times              8.3 times

Price-earnings ratio                                  50.3 times                          24.3 times         32.2 times

Profit margin                                             14%                                11%                     8%

Receivables turnover                                 11.4 times                          9.8 times              9.3 times

Return on assets                                          12%                                  9%                     7%

Return on common shareholder's equity                30%                               26%                   26%

Times interest earned                                 15.3 times                            7.9 times               5.3 times

Question a) Both companies offer customer credit terms of net 30 days. How successful are both companies at managing their accounts receivable? What is their average days for collection? Use the ratios to support your discussion.

Question b) How successful are both companies at managing their inventory? What are the average day number of days in inventory? Use the ratios to support your discussion.

Question c) Which company is more solvent? Use the ratios to support your discussion.

Question d) To your surprise, you notice that Company A's gross profit margin is much higher than both Company B and the industry average. What are 2 possible reasons for this?

Question e) Which company do investors believe has greater prospects for growing earnings and dividends? Use the ratios to support your discussion.

Question f) Based on all your analysis above, recommend which company you would rather be CEO of? Justify your recommendation.