Question

O Required information [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 Barco Kyan Company Company Company Company Data from the current year-end balance sheets Data from the current year's income statement Assets Sales $770,000 $880, 200 Cash $ 19,500 $ 34,000 Coat of goods sold 585,100 632,500 Recounts receivable, net 46,500 64,600 Interest expense 7,900 13,000 Merchandise inventory 84,440 132,500 Income tax expense 14,800 24,boo Prepaid expenses 5,000 6,950 Net Income 162,200 210,400 Plant assets, net 290.000 304,400 Basic earnings per share 4.51 5.11 Total assets $445,440 $542,450 Cash dividenda per share 3.81 3.93 Liabilities and Equity Beginning-of-year balance sheet data Current liabilities $ 61,340 $ 93,300 Accounts receivable, net $ 29,800 $ 54,200 Long-term notes payable 80,800 101,000 Merchandise inventory 55,600 107,400 Common stock, $5 par value 180,000 206,000 Total assets 398,000 382,500 Retained earnings 123300 142, 150 Common stock, $5 par value 180,000 206,000 Total liabilities and equity $445,440 $542,450 Retained earnings 98,300 93,500 2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (a return on total assets, and (c) return on common stockholders' equity. Assuming that each company's stock can be purchased at $75 per share, compute their (e) price-earnings ratios and ( dividend yields. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) 2b. Identify which company's stock you would recommend as the better investment. Complete this question by entering your answers in the tabs below. 2A Prof Mar Ratio 2A Tot Asset 2A Ret on Tot Turn Assets 2A Ret On Com Stock 2A Price Earn Ratio 2A Div Yield Reg 20 For both companies compute the profit margin ratio. (a) Company Choose Numerator: Profit Margin Ratio Choose Denominator: 4 1 1 Profit margin ratio Profit margin ratio Barco < Prev 7 of 7 BE Next

Answer 1

Question 2A

Profit Margin Ratio = Net Income / Sales * 100

For Barco

Profit Margin Ratio = 162,200 / 770,000 * 100

Profit Margin Ratio = 21.06%

For Kyan

Profit Margin Ratio = 210,400 / 880,200 * 100

Profit Margin Ratio = 23.90%

Part B

Total Assets Turnover = Sales / Average Total Assets

Average Total Assets = (Opening Balance of Total Assets + Closing Balance of Total Assets) / 2

For Barco Company

Total Assets Turnover = 770,000 / 421,720

Total Assets Turnover = 1.83 Times

Average Total Assets = (398,000 + 445,440)/2 = $ 421,720

For Kyan

Total Assets Turnover = 880,200 / 462,475

Total Assets Turnover = 1.90 Times

Average Total Asset = (382,500 + 542,450)/2 = $ 462,475

Part C

Return on Total Assets = Net Income / Average Total Assets * 100

For Barco

Return on Total Assets = 162,200 / 421,720 * 100

Return on Total Assets = 38.46%

For Kyan Company

Return on Total Assets = 210,400 / 462,475 * 100

Return on Total Assets = 45.49%

Part D

Return on Common StockholdersEquity = Net Income / Average Stockholders Equity

Average Stockholders Equity = (Opening Balance of Stockholders Equity + Closing Balance of Stockholders Equity) / 2

Stockholders Equity = Common Stock + Retained Earnings

For Barco Company

Return on Common Stockholders Equity = 162,200 / 290,800 * 100

Return on Common Stockholders Equity = 55.78%

Average Stockholders Equity = (180,000 + 98,300 + 180,000 + 123,300) / 2 = $ 290,800

For Kyan Company

Return on Common Stockholders Equity = 210,400 / 323,875 * 100

Return on Common Stockholders Equity = 64.96%

Average Stockholders Equity = (206,000 + 93,600 + 206,000 + 142,150) / 2 = $ 323,875

PartE

Price Earnings Ratio = Market Price per Share / Earnings per Share

For Barco Company

Price Earnings Ratio = 75 / 4.51

Price Earnings Ratio = 16.63 Times

For Kyan Company

Price Earnings Ratio = 75 / 5.11

Price Earnings Ratio = 14.68 Times

Part F

Dividends Yield = Cash Dividend per Share / Market Price per Share * 100

For Barco Company

Dividends Yield = 3.81 / 75* 100

Dividends Yield = 5.08%

For Kyan Company

Dividends Yield = 3.93 / 75 * 100

Dividends Yield = 5.24%

Question 2B

The Stock of Kyan Company seems to be a better investment as the above ratios calculated indicates Kyan have outperformed Barco in all the departments having an edge over Barco in terms of profitability and return. as the main motive of Investment for an investor is to get good return which Kyan is providing so it is a better investment.