Question: Calculate the following 13 ratios for both Company A and Company B Please show your work c

Question:

Calculate the following 13 ratios for both Company A and Company B Please show your work clearly, and briefly explain what each ratio means for both companies

Profit margin

Return on assets

Return on equity

Receivables turnover

Average collection period

Inventory turnover

Fixed asset turnover

Total asset turnover

Current ratio

Quick ratio

Debt to total assets

Times interest earned

Fixed charge coverage

Data:

Company A:

Cash $20,000

Accounts receivable $80,000

Inventory $50,000

Total current assets $150,000

Gross plant and equipment $500,000

Accumulated depreciation $150,000 (input as positive)

Net plant and equipment $350,000

Total assets $500,000

Accounts payable $100,000

Bonds payable (long-term) $80,000

Total liabilities $180,000

Common stock $150,000

Capital paid in excess of par $70,000

Retained earnings $100,000

Total stockholders’ equity $320,000

Total liabilities and stockholders’ equity $500,000

Credit sales $1,250,000

Cost of goods sold $750,000

Gross profit $500,000

Selling and administrative expense $257,000

Depreciation $50,000

Operating profit (EBIT) $193,000

Interest expense $8,000

Earnings before taxes (EBT) $185,000

Taxes $92,500

Earnings after taxes (EAT) $92,500

Lease payments included in S&A exp $7,000

Number of days in year 360

Company B:

Cash $35,000

Marketable securities $7,500

Accounts receivable $70,000

Inventory $75,000

Total current assets $187,500

Gross plant and equipment $500,000

Accumulated depreciation $250,000 (input as positive)

Net plant and equipment $250,000

Total assets $437,500

Accounts payable $75,000

Bonds payable (long-term) $210,000

Total liabilities $285,000

Common stock $75,000

Capital paid in excess of par $30,000

Retained earnings $47,500

Total stockholders’ equity $152,500

Total liabilities and stockholders’ equity $437,500

Credit sales $1,000,000

Cost of goods sold $600,000

Gross profit $400,000

Selling and administrative expense $224,000

Depreciation 50,000

Operating profit (EBIT) $126,000

Interest expense $21,000

Earnings before taxes (EBT) $105,000

Taxes $52,500

Earnings after taxes (EAT) $52,500

Lease payments included in S&A exp $7,000

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