Following are data from the statements of two companies selling comparable products: Current Year-End Balance Sheets Nike Zing Company Company Cash............................................................................................. 119.00 180.00 Notes receivable ........................................................................... 77.00 32.00 Accounts receivable, net ............................................................... 420.00 640.00 Merchandise inventory ................................................................. 588.00 877.00 Prepaid expenses .......................................................................... 16.00 55.00 Plant and equipment, net............................................................... 2,321.00 2,744.00 Total assets................................................................................... 3,541.00 4,528.00 Current liabilities.......................................................................... 560.00 800.00 Mortgage payable ......................................................................... 700.00 800.00 Common shares, no-par value....................................................... 1,400.00 1,600.00 Retained earnings ......................................................................... 881.00 1,328.00 Total liabilities and shareholders’ equity ....................................... 3,541.00 4,528.00 Data from the Current Year’s Income Statement Sales............................................................................................. 6,720.00 8,800.00 Cost of goods sold ........................................................................ 5,280.00 6,998.00 Interest expense ............................................................................ 41.00 56.00 Net income ................................................................................... 233.00 288.00 Beginning-of-Year Data Merchandise inventory ................................................................. 531.00 851.00 Total assets................................................................................... 3,458.00 4,431.00 Shareholders’ equity..................................................................... 2,170.00 2,851.00 Required: 1. Calculate current ratios, acid-test ratios, merchandise/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. 2. Calculate the return on total assets employed and return on shareholders’ equity. Then, under the assumption that each company’s shares can be purchased at book value, explain which company’s shares you think is the better investment and why.
Following are data from the statements of two companies selling comparable products:
Current Year-End Balance Sheets
Nike Zing
Company Company
Cash............................................................................................. 119.00 180.00
Notes receivable ........................................................................... 77.00 32.00
Accounts receivable, net ............................................................... 420.00 640.00
Merchandise inventory ................................................................. 588.00 877.00
Prepaid expenses .......................................................................... 16.00 55.00
Plant and equipment, net............................................................... 2,321.00 2,744.00
Total assets................................................................................... 3,541.00 4,528.00
Current liabilities.......................................................................... 560.00 800.00
Mortgage payable ......................................................................... 700.00 800.00
Common shares, no-par value....................................................... 1,400.00 1,600.00
Retained earnings ......................................................................... 881.00 1,328.00
Total liabilities and shareholders’ equity ....................................... 3,541.00 4,528.00
Data from the Current Year’s Income Statement
Sales............................................................................................. 6,720.00 8,800.00
Cost of goods sold ........................................................................ 5,280.00 6,998.00
Interest expense ............................................................................ 41.00 56.00
Net income ................................................................................... 233.00 288.00
Beginning-of-Year Data
Merchandise inventory ................................................................. 531.00 851.00
Total assets................................................................................... 3,458.00 4,431.00
Shareholders’ equity..................................................................... 2,170.00 2,851.00
Required:
1. Calculate
uncollected for the two companies. Then state which company you think is the better short-term
credit risk and why.
2. Calculate the return on total assets employed and return on shareholders’ equity. Then,
under the assumption that each company’s shares can be purchased at book value, explain
which company’s shares you think is the better investment and why.
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