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    Johnson Corporation and Simpson Corporation

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    Given the financial statements for Johnson Corporation and Simpson Corporation shown here:

    a. To which company would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why? Compute all relevant ratios before answering.

    b. In which one would you buy stock? Why?

    See attached file for full problem description.

    © BrainMass Inc. brainmass.com October 9, 2019, 7:07 pm ad1c9bdddf
    https://brainmass.com/business/financial-ratios/johnson-corporation-and-simpson-corporation-108671

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    Given the financial statements for Johnson Corporation and Simpson Corporation shown here:

    a. To which company would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why? Compute all relevant ratios before answering.

    Johnson Corporation Simpson Corporation

    1. Current ratio
    = current assets = 150,000 = 187,500
    current liabilities 100,000 75,000

    = 1.5 = 2.5
    2. Acid-test ratio

    = current assets - inventories
    current liabilities

    = 150,000 - 50,000 = 187,500 - 75,000
    100,000 75,000

    = 1.0 = 1.5

    3. Cash ratio
    = cash and cash equivalents
    current liabilities

    = 20,000 = 42,500
    100,000 ...

    Solution Summary

    This solution is comprised of a detailed explanation to compute the financial ratios of Johnson Corporation and Simpson Corporation and consider which company the investor should invest.

    $2.19