Question

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	$	790,000		$	927,200
Cash	$	18,500		$	37,000			Cost of goods sold		588,100			642,500
Accounts receivable, net		36,400			59,400			Interest expense		8,200			16,000
Current notes receivable (trade)		10,000			7,800			Income tax expense		15,185			25,597
Merchandise inventory		84,340			140,500			Net income		178,515			243,103
Prepaid expenses		5,900			7,700			Basic earnings per share		4.70			5.15
Plant assets, net		340,000			312,400			Cash dividends per share		3.77			4.02
Total assets	$	495,140		$	564,800
								Beginning-of-year balance sheet data
Liabilities and Equity								Accounts receivable, net	$	28,800		$	57,200
Current liabilities	$	67,340		$	97,300			Current notes receivable (trade)		0			0
Long-term notes payable		80,800			113,000			Merchandise inventory		59,600			115,400
Common stock, $5 par value		190,000			236,000			Total assets		388,000			392,500
Retained earnings		157,000			118,500			Common stock, $5 par value		190,000			236,000
Total liabilities and equity	$	495,140		$	564,800			Retained earnings		121,745			65,141

2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that share and each company’s stock can be purchased at $90 per share, compute their (e) price-earnings ratios and (f) 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