Summary information from the financial statements of two com

Summary information from the financial statements of two companies competing in the same industry follows Kyan Kyan Barco Company Company Barco Company Company Data from the current year-end balance sheets Data from the current year\'s income statement $ 880,200 770,000 $ 585,100 7,900 Assets Sales 632,500 Cash Accounts receivable, net Current notes receivable (trade) Merchandise inventory Prepaid expenses Plant assets, net $ 19,500 34,000 Cost of goods sold 37,400 9,100 84,440 5,000 13,000 14,800 24,300 162,200 210,400 5.11 57,400 Interest expense 7,200 Income tax expense 132,500 Net income 6,950Basic earnings per share 4.51 304,400 290,000 Cash dividends per share 3.81 3.93 445,440 $ $ 542,450 lotal assets Liabilities and Equity Current liabilities Long-term notes payable Beginning-of-year balance sheet data Accounts receivable, net Current notes receivable (trade) $ 29,800 54,200 0 $ 61,340 $ 93,300 80,800 180,000 123,300 142,150 Common stock, $5 par value 0 55,600 398,000 101,000 Merchandise inventory 206,000 107,400 382,500 Common stock, $5 par value Total assets 206,000 Retained earnings 180,000 542,450 Retained earnings Total liabilities and equity $445,440 $ 98,300 93,600

Solution

a. Profit margin ratio = Net income / Net sales
Barco company = 162,200 / 770,000 = 21.06%
Kyan company = 210,400 / 880,200 = 23.90%

b. Total Asset turnover = Net sales/ Average total assets
Barco company = 770,000/(445,440+398,000)/2= 770,000 / 421,720 = 1.83times
Kyan company = 880,200/ (542,450+382,500)/2 = 880,200 / 462,475 = 1.90times

c. Return on total assets = Net income/ Average total assets
Barco company = 162,200/421,720 = 38.46%
Kyan company = 210,400/ 462,475 = 45.49%

d. Return on common stock holder\'s equity = Net income - preferred dividend / Average common stock holder\'s equity
Barco company = 162,200-0/180,000 +(98,300+123,300)/2= 162,200 / 290,800 = 55.78%

Kyan company = 210,400-0/ 206,000 +(93,600+142,150)/2 = 210,400 / 323,875 = 64.96%

e. Price earnings ratio = Marker price per share / Earnings per share
Barco company = 75/4.51 = 16.63times

Kyan company =75/5.11 = 14.68times

f. Dividend yield ratio = Annual cash dividend per share / Market price per share
Barco company = 3.81/ 75 = 5.08%

Kyan company =3.93 / 75 = 5.24%

2.2 From both the company\'s a kyan company is the better investment option to choose.

Explanation:
We can clearly see from the above return ratio\'s kyan company\'s ratios are higher than the Barco company and price earnings ratio is lower than Barco which implies Kyan company is the better option when compare to Barco company.