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In: Accounting

Following are data from the statements of two companies selling similar products: Current Year-End Balance Sheets...

Following are data from the statements of two companies selling similar products:

Current Year-End Balance Sheets

Dodger
Company

Brave
Company

Cash.....................................................................

$ 21,900

$ 20,000

Notes receivable—short-term................................

7,700

3,200

Accounts receivable, net.......................................

42,000

64,000

Inventory...............................................................

58,800

87,680

Prepaid expenses.................................................

1,680

1,520

Plant and equipment, net......................................

232,120

264,400

Total assets..........................................................

$364,200

$440,800

Current liabilities...................................................

$ 66,000

$ 78,000

Mortgage payable..................................................

70,000

Common stock, $10 par value...............................

140,000

160,000

Retained earnings.................................................

88,200

132,800

Total liabilities and stockholders’ equity.................

$364,200

$440,800

Data from the Current Year’s Income Statement

Sales....................................................................

$672,000

$880,000

Cost of goods sold................................................

528,080

699,840

Interest expense....................................................

4,200

5,600

Net income............................................................

25,373

28,896

Beginning-of-Year Data

Inventory...............................................................

$ 53,200

$ 85,120

Total assets..........................................................

345,800

443,200

Stockholders’ equity..............................................

217,000

285,120

A. Calculate current ratios, acid-test ratios, inventory turnovers, and days’ sales uncollected for the two companies. Then state which company you think is the better short-term credit risk and why.

B. Calculate return on total assets employed and return on stockholders’ equity. Then, under the assumption that each company’s stock can be purchased at book value, state which company’s stock you think is the better investment and why

Expert Solution

Answer to Question A:

Answer to Question B:

ekkarill92 answered 2 years ago

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