Question

The financial statements for Armstrong and Blair companies are summarized here:

	Armstrong Company				Blair Company
Balance Sheet
Cash	$	30,000			$	17,000
Accounts Receivable, Net		35,000				25,000
Inventory		90,000				30,000
Equipment, Net		170,000				290,000
Other Assets		40,000				403,000
Total Assets	$	365,000			$	765,000
Current Liabilities	$	90,000			$	40,000
Note Payable (long-term)		50,000				360,000
Total Liabilities		140,000				400,000
Common Stock (par $10)		145,000				195,000
Additional Paid-in Capital		25,000				105,000
Retained Earnings		55,000				65,000
Total Liabilities and Stockholders’ Equity	$	365,000			$	765,000
Income Statement
Sales Revenue	$	435,000			$	795,000
Cost of Goods Sold		240,000				400,000
Other Expenses		155,000				310,000
Net Income	$	40,000			$	85,000
Other Data
Estimated value of each share at end of year	$	18			$	27
Selected Data from Previous Year
Accounts Receivable, Net	$	15,000			$	33,000
Inventory		87,000				40,000
Equipment, Net		170,000				290,000
Note Payable (long-term)		50,000				65,000
Total Stockholders’ Equity		226,000				435,000

The companies are in the same line of business and are direct competitors in a large metropolitan area. Both have been in business approximately 10 years and each has had steady growth. Despite these similarities, the management of each has a different viewpoint in many respects. Blair is more conservative, and as its president said, “We avoid what we consider to be undue risk.” Both companies use straight-line depreciation, but Blair estimates slightly shorter useful lives than Armstrong. No shares were issued in the current year and neither company is publicly held. Blair Company has an annual audit by a CPA, but Armstrong Company does not. Assume the end-of-year total assets and net equipment balances approximate the year’s average and all sales are on account.

Required:

1. Calculate the following ratios. TIP: To calculate EPS, use the balance in Common Stock to determine the number of shares outstanding. Common Stock equals the par value per share times the number of shares. (Use 365 days in a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)

	Ratio Armstrong Company Blair Company Tests of Profitability: 1. Net Profit Margin % % 2. Gross Profit Percentage % % 3. Fixed Asset Turnover 4. Return on Equity % % 5. Earnings per Share 6. Price/Earnings Ratio Tests of Liquidity: 7. Receivables Turnover Days to Collect 8. Inventory Turnover Days to Sell 9. Current Ratio Tests of Solvency: 10. Debt-to-Assets

Answer 1