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
Current ratio	3.22	1.82
Debt-to-assets	0.25	0.32
P/E ratio	15.4	25.6

Required:

1. 1. Which company appears more profitable? Describe the ratio(s) that you used to reach this decision.
2. 2. Which company appears more liquid? Describe the ratio(s) that you used to reach this decision.
3. 3. Which company appears more solvent? Describe the ratio(s) that you used to reach this decision.
4. 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.