Use the financial ratios of company A and company B to answer the questions below. Company A Company B Yr t+1 Year t Yr t+1 Year t Current ratio 0.55 0.59 0.56 0.55 Accounts receivable turnover 6.22 6.25 5.06 4.87 Debt to total assets 40.5% 40% 67.8% 65.9% Times interest earned 8.80 30.6 5.97 6.33 Free cash flows (in millions) ($3,819) $3,173 $168 $550 Return on stockholders’equity 7.7% 7.7% 26.6% 23.3% Return on assets 4.3% 4.3% 8.9% 7.9% Profit margin 10.5% 11% 16.1% 13.7% Asset Turnover 0.41 0.39 0.56 0.58 Earnings per share 1.43 1.40 2.25 1.82 Price earnings ratio 26.02 39.38 19.30 25.20 Net income* $4,153 $4,013 $4,220 $3,448 Cash provided by operating Activities (in millions) $7,666 $11,055 $8,590 $8,199 Which company collects cash faster from credit customer? Why? _____ Which company has better short-term debt-paying ability? Why? _____ Which company has better ability to pay interest? Why? _____ Which company has better solvency? Why? _____ Which firm use assets to generate revenue more effectively? Why? _____ Which company has better profitability? Why? _____ Which company use leverage more effectively? Why? (i.e., bigger gap between ROA and ROE) _____ Which company had an increase in net income & a decrease in operating cash flows, and a sharp drop in free cash flow? (Indicators of cash flow problem and/or earnings manipulation) _____ Which company is a better choice for stock investment? Why? _____
Use the financial ratios of company A and company B to answer the questions below.
Company A Company B
Yr t+1 Year t Yr t+1 Year t
Debt to total assets 40.5% 40% 67.8% 65.9%
Times interest earned 8.80 30.6 5.97 6.33
Free
Return on stockholders’equity 7.7% 7.7% 26.6% 23.3%
Return on assets 4.3% 4.3% 8.9% 7.9%
Profit margin 10.5% 11% 16.1% 13.7%
Asset Turnover 0.41 0.39 0.56 0.58
Earnings per share 1.43 1.40 2.25 1.82
Price earnings ratio 26.02 39.38 19.30 25.20
Net income* $4,153 $4,013 $4,220 $3,448
Cash provided by operating
Activities (in millions) $7,666 $11,055 $8,590 $8,199
Which company collects cash faster from credit customer? Why? _____
Which company has better short-term debt-paying ability? Why? _____
Which company has better ability to pay interest? Why? _____
Which company has better solvency? Why? _____
Which firm use assets to generate revenue more effectively? Why? _____
Which company has better profitability? Why? _____
Which company use leverage more effectively? Why?
(i.e., bigger gap between ROA and ROE) _____
Which company had an increase in net income & a decrease in
operating cash flows, and a sharp drop in
(Indicators of cash flow problem and/or earnings manipulation) _____
Which company is a better choice for stock investment? Why? _____
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