1 Two companies competing in the same industry are being evaluated by a bank that can lend money to 2 only one of them. Summary information from the financial statements of the two companies follows: Rowland Pierce Rowland Company 5 Data from the current year-end balance sheets: Pierce Company Company Company Data from the current year's income statements: Assets Cash Accounts Rec, net Current note receivable 2 Mdse Inventory Prepaid expenses Plant assets, net Total assets 19,500 34,000 Sales 770,000 585,100 880,200 37,400 57,400 Cost of Goods sold 632,500 13,000 9,100 7,200 Interest Expense 7,900 84,440 132,500 Income tax expense 14,800 24,300 5,000 6,950 Net income 162,200 210,400 290,000 445,440 Common shares outstanding 304,400 542,450 36,000 41,200 Beginning of year balance sheet data: Accounts Receivable, net Current Notes Receivable Liabilities and Equity 29,800 54,200 Current liabilities LT Notes Payable Common stock, $5 par value Retained Earnings Total liabilities and equity 61,340 93,300 101,000 Mdse Inventory 80,800 180,000 55,600 107,400 287,100 398,000 180,000 206,000 Plant assets, net 178,900 382,500 206,000 142,150 Total Assets 123,300 445,440 542,450 Common Stock Retained Earnings 98,300 93,600 Required: For both companies compute: d. Return on Equity e. Profit margin a. Asset Turnover b. Return on Assets c. Earnings per share Identify the company's stock you would recommend as the better investment and explain why.
1 Two companies competing in the same industry are being evaluated by a bank that can lend money to 2 only one of them. Summary information from the financial statements of the two companies follows: Rowland Pierce Rowland Company 5 Data from the current year-end balance sheets: Pierce Company Company Company Data from the current year's income statements: Assets Cash Accounts Rec, net Current note receivable 2 Mdse Inventory Prepaid expenses Plant assets, net Total assets 19,500 34,000 Sales 770,000 585,100 880,200 37,400 57,400 Cost of Goods sold 632,500 13,000 9,100 7,200 Interest Expense 7,900 84,440 132,500 Income tax expense 14,800 24,300 5,000 6,950 Net income 162,200 210,400 290,000 445,440 Common shares outstanding 304,400 542,450 36,000 41,200 Beginning of year balance sheet data: Accounts Receivable, net Current Notes Receivable Liabilities and Equity 29,800 54,200 Current liabilities LT Notes Payable Common stock, $5 par value Retained Earnings Total liabilities and equity 61,340 93,300 101,000 Mdse Inventory 80,800 180,000 55,600 107,400 287,100 398,000 180,000 206,000 Plant assets, net 178,900 382,500 206,000 142,150 Total Assets 123,300 445,440 542,450 Common Stock Retained Earnings 98,300 93,600 Required: For both companies compute: d. Return on Equity e. Profit margin a. Asset Turnover b. Return on Assets c. Earnings per share Identify the company's stock you would recommend as the better investment and explain why.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Comparative Financial Analysis of Two Companies: Rowland and Pierce**
Two companies competing in the same industry, Rowland Company and Pierce Company, are being evaluated by a bank that can lend money to only one of them. Below is a summary of the financial statements for both companies.
### Data from the Current Year-end Balance Sheets:
**Rowland Company:**
- **Assets:**
- Cash: $19,500
- Accounts Receivable, net: $37,400
- Current Note Receivable: $9,100
- Merchandise Inventory: $84,100
- Prepaid Expenses: $5,000
- Plant Assets, net: $290,000
- Total Assets: $445,400
- **Liabilities and Equity:**
- Current Liabilities: $61,340
- Long-term Notes Payable: $80,800
- Common Stock, $5 par value: $180,000
- Retained Earnings: $123,300
- Total Liabilities and Equity: $445,440
**Pierce Company:**
- **Assets:**
- Cash: $34,000
- Accounts Receivable, net: $57,400
- Current Note Receivable: $7,200
- Merchandise Inventory: $132,500
- Prepaid Expenses: $5,800
- Plant Assets, net: $304,450
- Total Assets: $542,450
- **Liabilities and Equity:**
- Current Liabilities: $93,300
- Long-term Notes Payable: $101,000
- Common Stock, $5 par value: $206,000
- Retained Earnings: $142,150
- Total Liabilities and Equity: $542,450
### Data from the Current Year's Income Statements:
**Rowland Company:**
- Sales: $770,000
- Cost of Goods Sold: $585,100
- Interest Expense: $7,900
- Income Tax Expense: $14,800
- Net Income: $162,200
- Common Shares Outstanding: 36,000
**Pierce Company:**
- Sales: $880,200
- Cost of Goods Sold: $632,500
- Interest Expense: $13,000
- Income Tax Expense: $24,300
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