Which company to choose?
Question:
shown on page 79:
a. To which company would you, as credit manager for a supplier, approve
the extension of (short-term) trade credit? Why? Compute all ratios before
answering.
b. In which one would you buy stock? Why?
JONES CORPORATION
Sales (on credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,250,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
†Selling and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . 257,000
Less: Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,000
Interest expense . . . . . . . . . . . . . . . . SMITH CORPORATION
Sales (on credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
†Selling and administrative expense . . . . . . . . . . . . . . . . . . . . . . . . 224,000
Less: Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,000
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,000
Tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,500
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,500
*Use net fixed assets in computing fixed asset turnover.
†Includes $7,000 in lease payments.
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . $ 20,000
Accounts receivable . . . . . . . . . . 80,000
Inventory . . . . . . . . . . . . . . . . . . . 50,000
Liabilities
Accounts payable . . . . . . . . . . . . $100,000
Bonds payable (long-term) . . . . . 80,000
Long-Term Assets
Fixed assets . . . . . . . . . . . . . . . . $500,000
Less: Accumulated
depreciation . . . . . . . . . . . . . (150,000)
*Net fixed assets . . . . . . . . . . . 350,000
Total assets . . . . . . . . . . . . . $500,000
Stockholders’ Equity
Common stock . . . . . . . . . . . . . . $150,000
Paid-in capital . . . . . . . . . . . . . . . 70,000
Retained earnings . . . . . . . . . . . . 100,000
Total liabilities and equity . . . . . $500,000
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . $ 35,000
Marketable securities . . . . . . . . . 7,500
Accounts receivable . . . . . . . . . . 70,000
Inventory . . . . . . . . . . . . . . . . . . . 75,000
Liabilities
Accounts payable . . . . . . . . . . . . $ 75,000
Bonds payable (long-term) . . . . . 210,000
Long-Term Assets
Fixed assets . . . . . . . . . . . . . . . . $500,000
Less: Accumulated
depreciation . . . . . . . . . . . . . (250,000)
*Net fixed assets . . . . . . . . . . . 250,000
Total assets . . . . . . . . . . . . . $437,500
Stockholders’ Equity
Common stock . . . . . . . . . . . . . . $ 75,000
Paid-in capital . . . . . . . . . . . . . . . 30,000
Retained earnings . . . . . . . . . . . . 47,500
Total liabilities and equity . . . . . $437,500
Answer:
Try to do your homework yourself...
More Questions & Answers...