Homework Answers
A) Bond investment viewpoint :
Company A is a better option since its return on debt is greater than Company B.
B) Share investment viewpoint :
Company B is a better option since its profit earning ratio is greater than Company A. Which shows the higher return on equity
C) Long term creditors investment viewpoint :
Company A is a better option since its return on long term liability is greater than Company B. This shows a higher return on equity.
Calculations:
| Ratio | Formula | Company A Calculation | A result | Company B Calculation | B result |
| Profit earning ratio | Market Value per share/ Earnings per share | =TL3.50 / TL 1.159 | 3.019 | =1.95/ TL 0.509 | 3.83 |
| Earnings per share | Net income / No. of Common stock outstanding | =TL69.563/60stock | =1.159 | =TL702/1378 stock | 0.509 |
| Return on Bonds Debt | Net income / Total Bond liability | =TL 69.563/ 182.726 | 0.38 | =TL702/0 |
0 |
| Return on Long term creditors | Net income / Total long term creditors | =TL 69.563/11.536 | 6.030 | =TL702/487 | 1.442 |
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from the Annual Report to Shareholders of Hotel California for the
2013 fiscal year. (Certain amounts have been replaced with question
marks to test your understanding of balance sheets.) In addition,
you’re provided with the following information from an analysis of
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