LS2488: Two companies that operate in the same industry as competitors are being evaluated by a bank for lending money. Summary information from the financial statements of the two companies is provided below:

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Question: Two companies that operate in the same industry as competitors are being evaluated by a bank for lending money. Summary information from the financial statements of the two companies is provided below:

Data from the current year -end Balance Sheets

Beginning of the year data

Required:

(i) Calculate current, acid-test rations, merchandise turnovers, and days sales uncollected for the two companies. Also state which company do you think is a better short-term credit risk and why.

(ii) Calculate earnings per share, rate of return on total assets employed, and rate of return on Stockholders equity. Assuming that each company’s stock can be purchased at Rs. 40 per Share, which company’s stock would recommend as the better investment? why?

 


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