Question

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 Company kyan Company Barco Company Kyan Company Data from the current year-end balance sheets Assets Cash Accounts receivable, net Current notes receivable (trade) Merchandise inventory Prepaid expenses Plant assets, net Total assets $ 19.50 $ 3e.ee 39.400 58,400 10,00 7.400 84,340 138. See 5,7ee 7 , 45e 35e,eee 34, 4ee 5 588,940 5545,150 Data from the current year's income statement Sales cost of goods sold Interest expense Income tax expense Net income Basic earnings per share Cash dividends per share $720.000 586,100 8,600 14,30 160,500 4.72 3.80 992.200 636 50e 13,60e 24907 227,793 $.81 3.97 $ 26,800 $ 52200 Liabilities and Equity Current liabilities Long-ters notes payable Comon stock, 55 par value Retained earnings Total liabilities and equity $ 64,340 $ 101,300 84,800 1eg,eee 17e,eee 196, eee 139,85e $ 50,94e $ 546. 15e 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. GO 428,000 170,000 158,500 107 400 392, see 196000 67,681 2n. For both companies compute the profit margin ratio. (b) total asset turnover (return on total assets, and (d) return on common stockholders' equity. Assuming that share and each company's stock can be purchased at $85 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

Answer 1

Answer:

a.Profit Margin = Net Income / Sales

Barco = 160500 / 770000 = 20.84%

Kyan = 227793 / 902200 = 25.25%

b.Total Asset Turnover = Sales / Avg.Total Assets

Barco = 770000 / ( 508940 + 428000 ) / 2 = 770000 / 468470 = 1.64

Kyan = 902200 / ( 546150 + 392500 ) / 2 = 902200 / 469325 = 1.92

c.Return on Total Assets = Net Income / Avg.Total Assets

Barco = 160500 / ( 508940 + 428000 ) / 2 = 160500 / 468470 = 34.26%

Kyan = 227793 / ( 546150 + 392500 ) / 2 = 227793 / 469325 = 48.54%

d.Return on Common Stockholders Equity = Net Income / Avg.Common Stockholders Equity

Barco = 160500 / ( 170000 + 189800 + 170000 + 158500 ) / 2 = 160500 / 344150 = 46.64%

Kyan = 227793 / ( 196000 + 139850 + 67681 + 196000 ) / 2 = 227793 / 299766 = 75.99%

e.Price Earnngs Ratio = Market Price / EPS

Barco = 85 / 4.72 = 18.008

Kyan = 85 / 5.81 = 14.63

f.Dividend Yields = Dividend per share / Market price per share

Barco = 3.80 / 85 = 4.47%

Kyan = 3.97 / 85 = 4.67%