Question

Required information Problem 13-5A Comparative ratio analysis LO A1, P3 [The following information applies to the questions displayed below.) Summary information from the financial statements of two companies competing in the same industry follows. Barco Kyan Company Company Data from the current year-end balance sheets Assets Cash $ 19,500 $ 37,000 Accounts receivable, net 39,400 55,400 Current notes receivable (trade) 9,800 8,000 Merchandise inventory 84,640 132,500 Prepaid expenses 5,300 7,650 Plant assets, net 310,000 1304,400 Total assets $468,640 $544,950 Data from the current years Sales cost of goods sold Interest expense Income tax expense Net income Basic earnings per share Cash dividends per share Barco Kyan Company Company Income statement $780,000 $905,200 585,100 644,500 8,100 17,000 14,992 24,990 171,808 218,710 5.05 4.84 3.73 $ 28,800 $ 56,200 Liabilities and Equity Current liabilities Long-term notes payable Common stock, $5 par value Retained earnings Total liabilities and equity $ 69,340 $ 95,300 82,800 103,000 170,000 226,000 146,500 120,650 $468,640 $544,950 Beginning-of-year balance sheet data Accounts receivable, net Current notes receivable (trade) Merchandise inventory Total assets Common stock, $5 par value Retained earnings 61,600 418,000 170,000 101,512 113,400 372,500 226,000 82,740 Problem 13-5 Part 1 Required: a. For both companies compute the () current ratio, (o) acid-test ratio, (d accounts (including notes) receivable turnover (o inventory curnover, (e) days' sales in inventory, and (7 days' sales uncollected. (Do not round intermediate calculations.) b. Identify the company you consider to be better short-term credit risk.

Answer 1

	Barco Company	Kyan Company
Current ratio= Current assets/ current liabilties	(468640-310000)/ 69340	(544950-7650) / 95300
	2.29	5.64
Acid test ratio= (Cash + current notes receivable + accounts receivable) / current liabilities	(19500+39400+9800)/69340	(37000+8000+55400)/95300
	0.99	1.05
Accounts receivable turnover= Net sales / Average accounts receivable net	780000 /((39400+9800+28800)/2)	905200/((55400+8000+56200)/2)
	20	15.14
Inventory turnover ratio=cost of goods sold/ Average inventory	585100/((61600+84640)/2)	644500/((113400+132500)/2)
	8.00	5.24
Days sales inventory=( Average inventory/ COGS) x 365	(((61600+84640)/2)/585100)*365	(((113400+132500)/2)/644500)*365
	45.61	69.63
Days sales uncollected= Average receivables/ Net sales x 365	(((39400+9800+28800)/2)/780000)*365	(((55400+8000+56200)/2)/905200)*365
	18.25	24.11
Better Short term credit risk	Barco