Question & Answer: e the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory Check (5) days' sales in inventory, (6…..

e the following: (1) current ratio, (2) acid-test ratio, (3) days sales uncollected, (4) inventory Check (5) days sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin to 1 total asset turnover, (10) return on total assets, and (11) return on common stockholders equity. ver. Acid-test ratio, 16 turnover, 1 fi to one decimal place; for part 6, round to two decimals. Summary information from the financial statements of two companies competing in the same industry Problem 17-58 Comparative ratio analysis A1 P3 Fargo Company Company Ball Fargo Ball Data from the current year-end balance sheets Data from the current years income statement Sales . $393.600 $667.500 290,600 480,000 Cash 20,000 $ 36.500 Cost of goods sold 77,100 5,900 12300 5,700 12,300 33,850 61,700 Current notes receivable (trade) .1.600 Merchandise inventory Prepaid expenses Plant assets, net . Total assets . 9,000 Income tax expense .. 82,000 Net income . 10,100 Basic earnings per share . 86.800 9,700 176,900 252.300 Beginning-of-year balance sheet data Accounts receivable, net 72.200 $73.300 Liabilities and Equity Current liabilities 90,500 Long-term notes Common stock, $5 par value1 Retained earnings Total liabilities and equity 97,000 Current notes receivable (trade) . 93,000 93,300 Merchandise inventory 133,000 141,000 Total assets 65,600 129,100 Common stock, $5 par value 383.400 443.000 133,000 141,000 49,100 109.700 payable. ... $382,100$460,400 Retained earnings
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e the following: (1) current ratio, (2) acid-test ratio, (3) days’ sales uncollected, (4) inventory Check (5) days’ sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin to 1 total asset turnover, (10) return on total assets, and (11) return on common stockholders’ equity. ver. Acid-test ratio, 16 turnover, 1 fi to one decimal place; for part 6, round to two decimals. Summary information from the financial statements of two companies competing in the same industry Problem 17-58 Comparative ratio analysis A1 P3 Fargo Company Company Ball Fargo Ball Data from the current year-end balance sheets Data from the current year’s income statement Sales . $393.600 $667.500 290,600 480,000 Cash 20,000 $ 36.500 Cost of goods sold 77,100 5,900 12300 5,700 12,300 33,850 61,700 Current notes receivable (trade) .1.600 Merchandise inventory Prepaid expenses Plant assets, net . Total assets . 9,000 Income tax expense .. 82,000 Net income . 10,100 Basic earnings per share . 86.800 9,700 176,900 252.300 Beginning-of-year balance sheet data Accounts receivable, net 72.200 $73.300 Liabilities and Equity Current liabilities 90,500 Long-term notes Common stock, $5 par value1 Retained earnings Total liabilities and equity 97,000 Current notes receivable (trade) . 93,000 93,300 Merchandise inventory 133,000 141,000 Total assets 65,600 129,100 Common stock, $5 par value 383.400 443.000 133,000 141,000 49,100 109.700 payable. … $382,100$460,400 Retained earnings

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Fargo Ball
Company Company
(a) Current ratio 2.3 2.1
     (Current assets / current liabilities)
(b) Acid-test ratio 1.3 1.3
     (Quick assets / current liabilities)
(c) Accounts receivable turnover 5.5 9.1
      (Sales / Average accounts receivable)
(d) Inventory turnover 4.1 8.2
     (Sales / Average inventory)
(e) Days sales in inventory 89.0 44.4
      (365/inventory turnover)
(f)Days’ sales uncollected 67.0 40.1
      (365/accounts receivables turnover)
From the analysis of the above ratios we can conclude that :
1. The short term liquidity in terms of coverage of current liabilities
     by total current assets is better than in the case of Fargo in
     comparison to Ball.
2. Even though the current ratio is better for Fargo(2.3) than Ball(2.1),
      the quick ratio is the same for both the companies. This implies
      that Fargo has more investment in inventory compared to Ball.
      this is also borne out by the better inventory turnover ratio and
      days’ sales inventory which are 4.1 and 67 respectively , i comparison
      to Ball’s 8.2 and 44.4.This shows that Ball Co.’s inventory management
      is better than fargo Co.
3. Same is the case with accounts receivables where in Ball’s ratio are
     better than Fargo.
Average accounts receivable
Beginning receivables 72200 73300
Ending receivables 77100 70500
Average accounts receivables 74650 71900
Average Inventory
Beginning inventory 105100 80500
Ending inventory 86800 82000
Average inventory 95950 81250
2.

(a) Profit margin ratio 26.2% 28.1%
      (Gross profit / sales)
(b) Total assets turnover             1.0             1.5
       (Sales / Average total assets)
(c) Return on total assets             0.1             0.1
      (Net income / average total assets)
(d) Return on common stockholders’ equity             0.2             0.2
      (Net income / average stockholders equity)
(e) Price – earnings ratio           16.7           16.7
      (Market price per share / dividend per share)
(f) Dividend yield 6.0% 6.0%
      (Dividend per share / market price per share)
From analysis of the above ratios we can conclude that
(a) Ball co. Is managin its operations better than Fargo Co.
       as can be seen from the gross margin ratio which is 28.1% for Ball co.
       in comparison to 26.2% for Fargo co.
(b) The assets turnover ratio is better for Ball Co. Than Fargo. Co.
(c) As an investor I will prefer Ball Co.to Fargo Co.since BallCo.has
       greater chances of paying more dividends in future as its gross profit margin
       is better than Fargo.co.
Average total assets
Beginning total assets 383400 443000
Ending assets 382100 460400
Average total assets 382750 451700
Average stockholders’ equity
Beginning stockholders’ equity 182100 250700
Ending stockholders’ equity 198600 270100
Average stockholders’ equity 190350 260400

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