Ratio compuation and analysis
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Given the financial statements for Jones Corporation and Smith Corporation shown here:
a. To which one would you, as credit manager for a supplier, approve the extension of (short-term) trade credit? Why? Compute all ratios before answering.
b. In which one would you buy stock? Why?
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Solution Summary
The solution explains how to calculate some ratios for Jones Corporation and Smith Corporation to decide which corporation should get extension of trade credit and in which corporation stock should be purchased.
Solution Preview
Please see the attachments. The excel file has ratio calculations.
Before we answer the question, we calculate all the ratios for Jones Corporation and Smith Corporation.
Jones Corp. Smith Corp.
Profit margin 7.40% 5.25%
Return on assets (investments) 18.50% 12.00%
Return on equity 28.91% 34.43%
Receivable turnover 15.63 14.29
Average collection period 23.36 25.55
Inventory turnover 12.00 8.00
Fixed asset turnover 3.57 4.00
Total asset turnover 2.50 2.29
Current ratio 1.50 2.50
Quick ratio 1.00 1.50
Debt to total assets 36.00% 65.14%
Times interest earned 24.13 6.00
Fixed ...
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