Question

​(Financial statement​ analysis)  Carson​ Electronics' management has long viewed BGT Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are found​ here:  

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a.  Calculate the following ratios for both Carson and​ BGT:

Current ratio Times interest earned Inventory turnover Total asset turnover Operating profit margin

Operating return on assets Debt ratio Average collection period Fixed asset turnover Return on equity

b.  Analyze the differences you observe between the two firms. Comment on what you view as weaknesses in the performance of Carson as compared to BGT that​ Carson's management might focus on to improve its operations.

a.  Calculate the following ratios for both Carson and​ BGT:

​Carson's current ratio is

nothing.

​(Round to two decimal​ places.)

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Data Table

	Carson​ Electronics, Inc. Balance Sheet​ ($000)			BGT​ Electronics, Inc. Balance Sheet​ ($000)
Cash		$ 2 comma 040$2,040			$ 1 comma 470$1,470
Accounts receivable		4 comma 4704,470			6 comma 0506,050
Inventories		1 comma 4501,450			2 comma 5402,540
Current assets		$ 7 comma 960$7,960			$ 10 comma 060$10,060
Net fixed assets		15 comma 96015,960			24 comma 97024,970
Total assets		$ 23 comma 920$23,920			$ 35 comma 030$35,030
Accounts payable		$ 2 comma 470$2,470			$ 4 comma 970$4,970
Accrued expenses		1 comma 0201,020			1 comma 5401,540
​Short-term notes payable		3 comma 4503,450			1 comma 4801,480
Current liabilities		$ 6 comma 940$6,940			$ 7 comma 990$7,990
​Long-term debt		7 comma 9807,980			3 comma 9903,990
​Owners' equity		9 comma 0009,000			23 comma 05023,050
Total liabilities and​ owners' equity		$ 23 comma 920$23,920			$ 35 comma 030$35,030

	Carson​ Electronics, Inc. Income Statement​ ($000)			BGT​ Electronics, Inc. Income Statement​ ($000)
Net sales​ (all credit)		$ 47 comma 960$47,960			$ 69 comma 950$69,950
Cost of goods sold		( 36 comma 050 )(36,050)			( 42 comma 000 )(42,000)
Gross profit		$ 11 comma 910$11,910			$ 27 comma 950$27,950
Operating expenses		( 8 comma 050 )(8,050)			( 11 comma 970 )(11,970)
Net operating income		$ 3 comma 860$3,860			$ 15 comma 980$15,980
Interest expense		( 1 comma 100 )(1,100)			( 520 )(520)
Earnings before taxes		$ 2 comma 760$2,760			$ 15 comma 460$15,460
Income taxes ​(40 %40%​)		( 1 comma 104 )(1,104)			( 6 comma 184 )(6,184)
Net income		$ 1 comma 656$1,656			$ 9 comma 276$9,276

Answer 1

Current ratio = Current Assets / Current Liabilities

Carson​ Electronics, Inc.= 7960 / 6940 = 1.15

BGT​ Electronics, Inc. = 10060 / 7990 = 1.26

Operating return on assets = Net operating income / Avg. Total Assets

Carson​ Electronics, Inc.= 3860 / 23920 = 16.14%

BGT​ Electronics, Inc. = 15980 / 35030 = 45.62%

Times interest earned = Net operating income / Interest expense

Carson​ Electronics, Inc.= 3860 / 1100 = 3.51 times

BGT​ Electronics, Inc. = 15980 / 520 = 30.73 times

Debt ratio = Total Liabilities / Total Assets

Carson​ Electronics, Inc.= (6940 + 7980 ) / 23920 = 0.624

BGT​ Electronics, Inc. = (7990 + 3990 ) / 35030 = 0.342

Inventory turnover = Cost of goods sold / Inventories

Carson​ Electronics, Inc.= 36050 / 1450 = 24.86

BGT​ Electronics, Inc. = 42000 / 2540 = 16.54

Average collection period = 365 / (Sales / Accounts receivable )

Carson​ Electronics, Inc.= 365 / ( 47960 / 4470 ) = 365 / 10.73 = 34.02 Days

BGT​ Electronics, Inc. = 365 / ( 69950 / 6050 ) = 365 / 11.56 = 31.57 Days

Total asset turnover = Sales / Total Assets

Carson​ Electronics, Inc.= 47960 / 23920 = 2.01

BGT​ Electronics, Inc. = 69950 / 35030 = 1.996 ~ 2

Fixed asset turnover = Sales / Total Fixed Assets

Carson​ Electronics, Inc.= 15960 / 23920 = 0.67

BGT​ Electronics, Inc. = 69950 / 24970 = 2.80

Operating profit margin = Net operating income / Net sales​

Carson​ Electronics, Inc.= 3860 / 47960 = 8.05%

BGT​ Electronics, Inc. = 15980 / 69950 = 22.84%

Return on equity = Net income / Total Equity

Carson​ Electronics, Inc.= 1656 / 9000 = 18.4%

BGT​ Electronics, Inc. = 9276 / 23050 = 40.24%

BGT​ Electronics, Inc. is very promising compared to Carson​ Electronics, Inc..The profit ratios are very impressive.Also the debt component is lower than equity showing less risk.Profits are way too high to cover interest onbligations(again a plus point).