10 Nov Comprehensive Ratio Analysis of two CompaniesP4. M
Comprehensive Ratio Analysis of two CompaniesP4. Mel Filbert is considering an investment in the common stock of a chain of retail department stores. She has narrowed her choice to two retail companies, Single Cor- poration and Design Corporation, whose income statements and balance sheets follow.Income Statements? 2b: Single asset turnover: 2.5 times? 3a: Single debt to equity ratio: 1.0 time? 4b: Single cash flow to sales: 2.2%? 5a: Single price/earnings ratio: 13.9 timesBalance Sheets AssetsSingle Design(Continued)Copyright 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.Chapter Assignments 699Liabilities and Stockholders’ equityLO 4? 1: Net income using FIFO and straight line: $190,800? 1: Net income using LIFO anddouble-declining-balance: $93,200Accounts payable $ 344,000 $ 572,600 Notes payable 150,000 400,000 Income taxes payable 50,200 73,400 Bonds payable 2,000,000 2,000,000 Common stock, $20 par value 1,000,000 600,000 Additional paid-in capital 609,800 3,568,600 Retained earnings 833,200 2,112,000 Total liabilities and stockholders’ equity $4,987,200 $9,326,600During the year, Single paid a total of $50,000 in dividends. The market price per share of its stock is currently $60. In comparison, Design paid a total of $114,000 in dividends, and the current market price of its stock is $76 per share. Single had net cash flows from operations of $271,500 and net capital expenditures of $625,000. Design had net cash flows from operations of $492,500 and net capital expenditures of $1,050,000. Information for prior years is not readily available. Assume that all notes payable are current liabilities and all bonds payable are long-term liabilities and that there is no change in inventory.ReQUIReDConduct a comprehensive ratio analysis for each company, using the available informa- tion. Compare the results. (Round to one decimal place, and consider changes of 0.1 or less to be indeterminate.)1. Prepare an operating asset management analysis by calculating for each company the (a) current ratio, (b) quick ratio, (c) receivables turnover, (d) days’ sales uncol- lected, (e) inventory turnover, (f) days’ inventory on hand, (g) payables turnover,(h) days’ payable, and (i) financing period.2. Prepare a profitability and total asset management analysis by calculating for each company the (a) profit margin, (b) asset turnover, and (c) return on assets.3. Prepare a financial risk analysis by calculating for each company the (a) debt to equity ratio, (b) return on equity, and (c) interest coverage ratio.4. Prepare a liquidity analysis by calculating for each company the (a) cash flow yield,(b) cash flows to sales, (c) cash flows to assets, and (d) free cash flow.5. Prepare an analysis of market strength by calculating for each company the (a) price/earnings (P/E) ratio and (b) dividend yield.6. aCCoUntinG ConneCtion ? Compare the two companies by inserting the ratio calculations from 1 through 5 in a table with the following column headings: Ratio Name, Single, Design, and Company with More Favorable Ratio. Indicate in the last column which company had the more favorable ratio in each case.7. BUSineSS appliCation ? How could the analysis be improved if information about these companies’ prior years were available?
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