98,300 Required: 1 For both companies compute: d. Net Assets e. Debt ratio f. Times Interest Eamed Identify the company vou consider to be the better credit risk (evaluate liquidity and solvency) and explain why.
98,300 Required: 1 For both companies compute: d. Net Assets e. Debt ratio f. Times Interest Eamed Identify the company vou consider to be the better credit risk (evaluate liquidity and solvency) 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
Related questions
Question
Transcribed Image Text:A
B.
D.
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:
3
4
Rowland
Pierce
Rowland
Pierce
Company
6 Data from the current year-end balance sheets:
Company
Company
Data from the current year's income statements:
Company
7.
8 Assets
9 Cash
10 Accounts Rec, net
1 Current note receivable
2 Mdse Inventory
3 Prepaid expenses
4 Plant assets, net
5 Total assets
19,500
34,000
Sales
770,000
880.200
37,400
57,400
Cost of Goods sold
585,100
632.500
9,100
7,200
Interest Expense
Income tax expense
7,900
13,000
84,440
132,500
14,800
24,300
5,000
6,950
Net income
162,200
210,400
290,000
304,400
Common shares outstanding
36,000
41.200
445,440
542,450
Beginning of year balance sheet data:
Accounts Receivable, net
- Liabilities and Equity
3 Current liabilities
O LT Notes Payable
O Common stock, $5 par value
Retained Eamings
Total liabilities and equity
29,800
54.200
61,340
93,300
Current Notes Receivable
80,800
101.000
Mdse Inventory
Plant assets, net
55,600
107,400
180,000
206,000
287,100
178.900
123,300
142,150
Total Assets
382.50G-
398.000
445,440
542,450
Common Stock
180,000
206,000
Retained Earmings
98,300
93,600
Required:
1 For both companies compute:
d. Net Assets
e. Debt ratio
f. Times Interest Earned
Identify the company you consider to be the better credit risk (evaluate liquidity and solvency) and explain why.
Expert Solution
Introduction
Liquidity ratios are financial ratios that measure the ability of a firm to pay back its short-term debt obligation. On the other hand, solvency ratios are financial ratios that evaluate the ability of a firm to pay back its long-term debt obligation. Net assets refer to the value of assets remaining with a company after adjusting for the liabilities. Debt ratio refers to the ratio that represents the proportion of total assets financed with debt. The times' interest earned ratio refers to the ability of the company to repay its debt obligation.
Step by step
Solved in 5 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education