Summary information from the financial statements of two companies competing in the same industry follows. Barco Company Kyan Company Barco Company Kyan Company Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales $ 770,000 $ 914,200 Cash $ 21,000 $ 34,000 Cost of goods sold 587,100 642,500 Accounts receivable, net 34,400 59,400 Interest expense 9,100 17,000 Merchandise inventory 84,940 132,500 Income tax expense 14,800 25,238 Prepaid expenses 5,400 7,350 Net income 159,000 229,462 Plant assets, net 310,000 307,400 Basic earnings per share 3.79 5.08 Total assets $ 455,740 $ 540,650 Cash dividends per share 3.82 4.01 Liabilities and Equity Beginning-of-year balance sheet data Current liabilities $ 70,340 $ 102,300 Accounts receivable, net $ 28,800 $ 56,200 Long-term notes payable 82,800 107,000 Merchandise inventory 63,600 115,400 Common stock, $5 par value 210,000 226,000 Total assets 388,000 382,500 Retained earnings 92,600 105,350 Common stock, $5 par value 210,000 226,000 Total liabilities and equity $ 455,740 $ 540,650 Retained earnings 94,040 57,140 rev: 11_27_2019_QC_CS-192168 2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that each company’s stock can be purchased at $100 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.) 2b. Identify which company’s stock you would recommend as the better investment.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
[The following information applies to the questions displayed below.]
Summary information from the financial statements of two companies competing in the same industry follows.
| Barco Company |
Kyan Company |
Barco Company |
Kyan Company |
|||||||||||
| Data from the current year-end balance sheets | Data from the current year’s income statement | |||||||||||||
| Assets | Sales | $ | 770,000 | $ | 914,200 | |||||||||
| Cash | $ | 21,000 | $ | 34,000 | Cost of goods sold | 587,100 | 642,500 | |||||||
| 34,400 | 59,400 | Interest expense | 9,100 | 17,000 | ||||||||||
| Merchandise inventory | 84,940 | 132,500 | Income tax expense | 14,800 | 25,238 | |||||||||
| Prepaid expenses | 5,400 | 7,350 | Net income | 159,000 | 229,462 | |||||||||
| Plant assets, net | 310,000 | 307,400 | Basic earnings per share | 3.79 | 5.08 | |||||||||
| Total assets | $ | 455,740 | $ | 540,650 | Cash dividends per share | 3.82 | 4.01 | |||||||
| Liabilities and Equity | Beginning-of-year |
|||||||||||||
| Current liabilities | $ | 70,340 | $ | 102,300 | Accounts receivable, net | $ | 28,800 | $ | 56,200 | |||||
| Long-term notes payable | 82,800 | 107,000 | Merchandise inventory | 63,600 | 115,400 | |||||||||
| Common stock, $5 par value | 210,000 | 226,000 | Total assets | 388,000 | 382,500 | |||||||||
| 92,600 | 105,350 | Common stock, $5 par value | 210,000 | 226,000 | ||||||||||
| Total liabilities and equity | $ | 455,740 | $ | 540,650 | Retained earnings | 94,040 | 57,140 | |||||||
rev: 11_27_2019_QC_CS-192168
2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common
2b. Identify which company’s stock you would recommend as the better investment.
![Required information
[The following information applies to the questions displayed below.]
Summary information from the financial statements of two companies competing in the same industry follows.
Barco
Кyan
Company
Barco
Кyan
Company
Company
Company
Data from the current year-end balance sheets
Data from the current year's income statement
Sales
Cost of goods sold
Interest expense
Income tax expense
$770,000 $914, 200
587,100
9,100
14,800
159,000
Assets
$ 21,000 $ 34,000
Cash
Accounts receivable, net
Merchandise inventory
Prepaid expenses
Plant assets, net
642 500
17,000
25 238
34,400
84,940
59,400
132,500
Net income
5,400
310,000
7,350
229,462
307,400
Basic earnings per share
3.79
5.08
Total assets
$455,740 $540,650
Cash dividends per share
3.82
4.01
Liabilities and Equity
Beginning-of-year balance sheet data
Accounts receivable, net
Merchandise inventory
Total assets
Current liabilities
$ 70,340 $102,300
$ 28,800 $ 56,200
Long-term notes payable
Common stock, $5 par value
Retained earnings
82,800
210,000
107,000
226,000
105,350
63,600
115,400
388, 000
382 500
Common stock, $5 par value
Retained earnings
92,600
210,000
226,000
Total liabilities and equity
$455,740 $540,650
94,040
57.140
2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common
stockholders' equity. Assuming that each company's stock can be purchased at $100 per share, compute their (e) price-earnings ratios
and (f dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
2b. Identify which company's stock you would recommend as the better investment.
Complete this question by entering your answers in the tabs below.
2A Prof Mar
Ratio
2A Tot Asset 2A Ret on Tot
Turn
2A Ret On
Com Stock
2A Price Earn
2A Div Yield
Reg 2B
Assets
Ratio
For both companies compute the profit margin ratio.
Profit Margin Ratio
I Choose Denominator:
(a)
Company Choose Numerator:
= Profit margin ratio
= Profit margin ratio
Barco
Кyan
< 2A Prof Mar Ratio
2A Tot Asset Turn >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F425a9a45-7c16-4159-a26d-51882221639a%2F9f3b983a-6955-4901-b694-224355a4cbb3%2Fy0blpbd_processed.jpeg&w=3840&q=75)
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