Financial Statement Ratio analysis: Birdy Co, Bogey Co
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Summary information from the financial statements of two companies competing in the same industry follows:
Data from the 2012 year-end balance sheets (see attached)
Requirements
1. Prepare common-size 2012 balance sheets for each company.
2. Prepare common-size 2012 income statements for each company.
3. For both companies compute the (a) current ratio, (b) acid-test ratio, (c) accounts receivable turnover, (d) inventory turnover, (e) days' sales in inventory, (f) days' sales uncollected. (g) profit margin, (h) return on total assets, and (i) return on common stockholders' equity.
4. Assuming that each company paid cash dividends of $.75 per share and each company's stock can be purchased at $32 per share, compute their (a) price- earnings ratios and (b) dividend yields.
5. Prepare a statement containing the following items:
a. Identify the company your group considers to have the better short-term financial position. Back up your decision with appropriate analysis and numbers.
b. Assuming that you had funds to invest in only one of these companies, identify the company your group would invest in. Back up your decision with appropriate analysis and numbers.
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Solution Summary
Discussion is 475 words and explains which firm is stronger in each of three areas: profitability, liquidity and productivity.
Solution Preview
a. Identify the company your group considers to have the better short-term financial position. Back up your decision with appropriate analysis and numbers.
Short term financial health is measured by current ratio and quick ratio. Typically, these measure have minimums but more is not better. For instance, if a firm has twice the amount of current assets as are needed to pay current liabilities (current ratio of 2), that is adequate. If another firm has three times the amount of current assets as are needed to pay current liabilities (current ratio of 3), that is also adequate. Neither firm is likely to have a problem paying their short-term obligations. It isn't really ...
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