Current Year-End Balance Sheets
Sied Zip Company Company
$11,900 $20,000 Cash.
$7,700 $3,200 Accounts receivable, net.
$42,000 $64,000 Inventory.
$58,800 $87,680 Prepaid expenses.
$1,680 $3,520 Plant and equipment, net.
Total assets: $232,120 $274,400
Current liabilities
Mortgage payable
Common stock, $10 par value.
Retained earnings.
Total liabilities and stockholders' equity.
$56,000 $70,000
$140,000 $88,200
Total liabilities and stockholders' equity: $354,200
$80,000 $80,000
$160,000 $132,800
Total liabilities and stockholders' equity: $452,800
Beginning-of-Year Data
Inventory
Total assets
Stockholders' equity.
$53,200 $345,800 $217,000
$85,120 $443,200 $285,120
Data from the Current Year's Income Statement
Sales: $672,000
Cost of goods sold: $528,080
Interest expense: $4,200
Net income: $23,373
$880,000 $699,840 $5,600 $28,896
Required:
1. Calculate current ratios, acid-test ratios, inventory turnovers, and days' sales uncollected for the two companies. Then state which company you think is the better short-term credit risk and why.
2. Calculate return on total assets employed and return on stockholders' equity. Then, under the assumption that each company's stock can be purchased at book value, state which company's stock you think is the better investment and why.
