Question

Summary information from the financial statements of two companies competing in the same industry follows. Cash Barco Kyan Barco Kyan Company Company Company Company Data from the current year end balance sheets Data from the current year's income statesent $770,000 $880, 200 $ 19,500 $ 34,000 Cost of goods sold 585,100 532.500 Accounts receivable. net 37.400 57.400 Interest expense 7,900 13.000 Current notes receivable (trade) 9, 100 7,200 Income tax expense 14,800 24.300 Merchandise inventory 34,449 132.500 Net Income 162,200 210.400 Prepaid expenses 5,000 6,950 Basic earnings per share 4.51 Plant assets, net 290,000 304, 400 Cash dividends per share 3.93 Total assets 5445, 44051142, 450 Beginning-of-year balance sheet data Liabilities and Equity Accounts receivable, net $ 29,800 $ 54,200 Current liabilities $ 81,340 S 93,300 Current notes receivable (trade) Long-term notes payable BO, 00 101,000 Merchandise inventory 55,600 107, 109 Common stock: $5 par value 180,00 206,000 Total assets 399.000 382.500 Retained earnings 123,300 142, 150 Common stock, 55 par value 180,000 206,000 Total liabilities and equity 5445, 440 9542,450 Retained earnings 98,300 93,000 Required: 1a. For both companies compute the (a) current ratio. (5) acid-test ratio, (accounts (including notes) receivable turnover, (dinventory turnover, (e) days' sales in inventory, and (days' sales uncollected. (Do not round intermediate calculations.) 1b. Identify the company you consider to be the better short-term credit risk. Complete this question by entering your answers in the tabs below. 1A Current 1 A Days Salin A Acid Test Ratio 1A Acct Ree Turn 1A Invent Turnover A Days SN Uncol 18 short term For both companies compute the current ratio. Prev 1 2 or 4 h Next >

Answer 1

Ratio Analysis:

			Barco	Kyan
a	Current ratio	current assets / current liabilities	(19,500+37,400+9,100+84,440+5000)/61,340 = 155,440/61,340 = 2.53 : 1	(34,000+57,400+7,200+132,500+6,950)/93,300 = 238,050/93,300 = 2.55 : 1
b	acid test ratio	(cash + accounts receivable + Current notes receivable) / current liabilities	(19,500+37,400+9,100)/61,340 = 66,000/61,340 = 1.08 : 1	(34,000+57,400+7,200)/93,300 = 98,600/93,300 = 1.06 : 1
c	accounts receivable turnover	sales / average accounts receivable	770,000/((37,400+29,800)/2) = 770,000/33,600 = 22.92 times	880,200/((57,400+54,200)/2) = 880,200/55,800 = 15.77 times
d	inventory turnover	COGS / average inventory	585,100/((84,440+55,600)/2) = 585,100/112,240 = 5.21 times	632,500/((132,500+107,400)/2) = 632,500/119,950 = 5.27 times
e	days in sales in inventory	365 / inventory turnover ratio	365/5.21 = 70 days (approximately)	365/5.27 = 69 days (approximately)
f	days sales uncollected	365 / accounts receivable ratio	365/22.92 = 16 days (approximately)	365/15.77 = 23 days (approximately)

Barco company is consider to be better in short term credit risk since it having higher acid test ratio and days sales uncollected also lower.