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Analyzing financial statement - income statement & balance sheet

Comparative data for Oscar and Felix Company, two competitors, are presented below. The time frame for both companies is the same. All the amounts are in AED.

No. Account ABC Company XYZ Company
1 Net sales 900,000 1,810,000
2 Cost of good sold 460,000 720,000
3 Operating expenses 330,000 255,000
4 Non-operating expenses 160,000 10,000
5 Income tax expense 10,000 65,000
6 Gain on the sale of assets 30,000 75,000
7 Extraordinary gain (loss) 170,000 (210,000)
8 Current assets 180,000 700,000
9 Total assets 600,000 1,600,000
10 Current liabilities 160,000 250,000
11 Long-term liabilities 190,000 200,000

Additional Information

Cash from operating activities 126,000 380,000
Capital expenditures 20,00 50,000
Dividends paid 40,000 15,000
Ending balance of inventory 80,000 300,000
Average number of shares outstanding 200,000 400,000

Required

1. Comment on the relative profitability of the companies by using the operating income and income from continuing from operation ratios. Are these rations appropriate from assessing relative profitability? Explain
2. Comment on the relative liquidity of the companies by using working capital, current ratio, and quick ratio. Which of the two ratios is more appropriate for assessing the liquidity of the firm?
3. Comment on the relative solvency of the companies.
4. What would be a good measure to assess the relative ability of the company to finance new investment? Which of the two firms are better suited for additional investment in long-term capital? Explain.

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Solution Summary

The solution examines income statements and balance sheet financial statements. The relative profitability of the companies are discussed.

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