Required:1. Complete a schedule that reflects a ratio analysis of each company. Useending balances if average balances are not available. (Round intermediatecalculations and final answers to 2 decimal places.)ArmstrongCompanyBlairRatioCompanyTests of profitability:Return on equity26.47 %22.50 %37.50 %Return on assets22.50 %Financial leveragepercentage15.00 %3.97 %per$4.50shareEarnings per share$ 3.00pershare14.00 %2.50 times15.00 %2.70 timesProfit marginFixed asset turnoverTests of liquidity:Cash ratio0.260.57Current ratio1.751.84Quick ratio0.661.3915.00 times2.55 timesReceivables turnover23.82 timesInventory turnoverTests of solvency:9.53 timesTimes-interest-earned1.67 times2.57 timesratioDebt-to-equity ratioMarket tests:Price/earnings ratioDividend yield ratio0.260.193.215.2117.78 %40.00 % The 2017 financial statements for Armstrong and Blair companies aresummarized below:ArmstrongCompanyBlairCompanyStatement of Financial Position$ 22,000$35,00040,000100,000140,00085,000CashAccounts receivable (net)InventoryProperty, plant, and equipment (net)Other non-current assets30,00040,000400,000308,000Total assets$ 400,000$ 800,000$ 50,000$ 100,00060,000150,00030,00060,000Current liabilitiesLong-term debt (10%)Share capitalContributed surplusRetained earnings70,000500,000110,00070,000Total liabilities and shareholders' equity $ 400,000$ 800,000Statement of EarningsSales revenue (1/3 on credit)Cost of sales$ 450,000(245,000)$ 810,000(405,000)Expenses (including interest and incometax)(160,000)(315,000)Net earnings$ 45,000$ 90,000Selected data from the 2016 statements follows:Accounts receivable (net)InventoryLong-term debtOther data:$20,00092,00060,000$ 40,00048,00070,0002$$Share price at end of 2017Income tax rate181530%30%Dividends declared and paid in 2017 $36,000Number of common shares during2017$150,00015,00050,000The companies are in the same line of business and are direct competitors in alarge metropolitan area. Both have been in business approximately 10 years,and each has had steady growth. The management of each has a differentviewpoint in many respects. Blair Company is more conservative, and as itspresident said, "We avoid what we consider to be undue risk." Neithercompany is publicly held. Armstrong Company has an annual audit by anindependent auditor, but Blair Company does not.

Answer - Ratio Armstrong Company Blair Company Tests of Profitability :…

Required: 1. Complete a schedule that reflects a ratio analysis of each company. Use ending balances if average balances are not available. (Round intermediate calculations and final answers to 2 decimal places.) Armstrong Company Blair Ratio Company Tests of profitability: Return on equity 37.50 % 26.47 % 22.50 % Return on assets 22.50 % Financial leverage |percentage 15.00 % 3.97 % per $ 3.00 share per $4.50 share Earnings per share 14.00 % 2.50 times 15.00 % 2.70 times Profit margin Fixed asset turnover Tests of liquidity: Cash ratio 0.26 0.57 Current ratio 1.75 1.84 0.66 15.00 times 2.55 times Quick ratio 1.39 23.82 times 9.53 times Receivables turnover Inventory turnover Tests of solvency: Times-interest-earned 1.67 times 2.57 times ratio Debt-to-equity ratio Market tests: Price/earnings ratio Dividend yield ratio 0.26 0.19 3.21 5.21 17.78 % 40.00 %

Required: 1. Complete a schedule that reflects a ratio analysis of each company. Use ending balances if average balances are not available. (Round intermediate calculations and final answers to 2 decimal places.) Armstrong Company Blair Ratio Company Tests of profitability: Return on equity 37.50 % 26.47 % 22.50 % Return on assets 22.50 % Financial leverage |percentage 15.00 % 3.97 % per $ 3.00 share per $4.50 share Earnings per share 14.00 % 2.50 times 15.00 % 2.70 times Profit margin Fixed asset turnover Tests of liquidity: Cash ratio 0.26 0.57 Current ratio 1.75 1.84 0.66 15.00 times 2.55 times Quick ratio 1.39 23.82 times 9.53 times Receivables turnover Inventory turnover Tests of solvency: Times-interest-earned 1.67 times 2.57 times ratio Debt-to-equity ratio Market tests: Price/earnings ratio Dividend yield ratio 0.26 0.19 3.21 5.21 17.78 % 40.00 %

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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