Fundamentals of Financial Accounting
5th Edition
ISBN: 9780078025914
Author: Fred Phillips Associate Professor, Robert Libby, Patricia Libby
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 13.5PB
Interpreting Profitability, Liquidity, Solvency, and P/E Ratios
Mattel and Hasbro are the two biggest makers of games and toys in the world. Mattel sells over $6 billion of products each year while annual sales of Hasbro products exceed $4 billion. Compare the two companies as a potential investment based on the following ratios:
| Ratio | Mattel | Hasbro |
| Gross profit percentage | 53.7% | 58.1% |
| Net profit margin | 13.9% | 10.0% |
| Return on equity | 28.4% | 18.0% |
| EPS | $2.59 | $2.16 |
| Receivables turnover ratio | 5.2 | 3.8 |
| Inventory turnover ratio | 5.8 | 5.0 |
| 3.22 | 1.82 | |
| Debt-to-assets | 0.25 | 0.32 |
| P/E ratio | 15.4 | 25.6 |
Required:
- 1. Which company appears more profitable? Describe the ratio(s) that you used to reach this decision.
- 2. Which company appears more liquid? Describe the ratio(s) that you used to reach this decision.
- 3. Which company appears more solvent? Describe the ratio(s) that you used to reach this decision.
- 4. Are the conclusions from your analyses in requirements 1–3 consistent with the value of the two companies, as suggested by their P/E ratios? If not, offer one explanation for any apparent inconsistency.
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Chapter 13 Solutions
Fundamentals of Financial Accounting
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