Question

Required information

Problem 17-5A Comparative ratio analysis LO A1, P3

[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								Data from the current year’s income statement
Assets								Sales	$	800,000		$	912,200
Cash	$	18,000		$	34,000			Cost of goods sold		596,100			650,500
Accounts receivable, net		37,400			56,400			Interest expense		7,700			17,000
Current notes receivable (trade)		9,500			7,400			Income tax expense		15,377			25,183
Merchandise inventory		84,540			138,500			Net income		180,823			219,517
Prepaid expenses		5,800			7,150			Basic earnings per share		5.32			4.46
Plant assets, net		350,000			304,400			Cash dividends per share		3.81			3.92
Total assets	$	505,240		$	547,850
								Beginning-of-year balance sheet data
Liabilities and Equity								Accounts receivable, net	$	31,800		$	53,200
Current liabilities	$	71,340		$	93,300			Current notes receivable (trade)		0			0
Long-term notes payable		85,800			99,000			Merchandise inventory		63,600			117,400
Common stock, $5 par value		170,000			246,000			Total assets		428,000			412,500
Retained earnings		178,100			109,550			Common stock, $5 par value		170,000			246,000
Total liabilities and equity	$	505,240		$	547,850			Retained earnings		126,817			82,897

Problem 17-5 Part 1

Required:
1a. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts (including notes) receivable turnover, (d) inventory turnover, (e) days’ sales in inventory, and (f) days’ sales uncollected. (Do not round intermediate calculations.)

For both companies compute the current ratio.

(a) Current Ratio Company Choose Numerator: / Choose Denominator: = Current Ratio / = Current ratio Barco / = 0 to 1 Kyan / = 0 to 1 For both companies compute the acid-test ratio. (b) Acid-Test Ratio Company Choose Numerator: Choose Denominator: = Acid-Test Ratio + + / = Acid-test ratio Barco + + / = 0 to 1 Kyan + + / 0 to 1 For both companies compute the accounts (including notes) receivable turnover. (c) Accounts Receivable Turnover Company Choose Numerator: / Choose Denominator: = Accounts Receivable Turnover / = Accounts receivable turnover Barco / = 0 times Kyan / = 0 times For both companies compute the inventory turnover. (d) Inventory Turnover Company Choose Numerator: / Choose Denominator: = Inventory Turnover / = Inventory turnover Barco / = 0 times Kyan / = 0 times For both companies compute the days' sales in inventory. (e) Days’ Sales in Inventory Company Choose Numerator: / Choose Denominator: x Days = Days’ Sales in Inventory / x = Days’ sales in inventory Barco / x = 0 days Kyan / x = 0 days For both companies compute the days' sales uncollected. (f) Days' Sales Uncollected Company Choose Numerator: / Choose Denominator: x Days = Days' Sales Uncollected / x = Days' sales uncollected Barco / x = 0 days Kyan / x = 0 days Identify the company you consider to be the better short-term credit risk. Better short-term credit risk

Answer 1