Evaluate the financial statement data and the financial ratios for these two firms and answer the...

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Finance

Evaluate the financial statement data and the financial ratiosfor these two firms and answer the questions. Your answers shouldbe based on the numbers given. Show your work to ensure credit.
Compute the Cash Conversion Cycle for both firms. Which firmhas the shorter CCC? Provide evidence for your answer.
Which of these two firms has the highest average annualEarnings Per Share ratio? Explain your answer (show your work)
If you were a bank lending officer specializing in short-termloans to businesses, which of the two firms would you rather dobusiness with? Explain your answer.
Firm A Firm B
Income Statement 2016 2015 2014 2016 2015 2014
Revenues 58,811 63,740 49,853 350,052 347,379 349,894
Cost of Goods Sold 35,830 38,206 30,616 258,040 257,846 260,776
Gross Profit 22,981 25,534 19,237 92,012 89,533 89,118
Operating Expenses 6,611 6,116 4,923 72,752 69,315 66,727
Operating Income 16,370 19,418 14,314 19,260 20,218 22,391
Interest & Other Non-Oper Exp 368 350 267 1,090 1,105 1,251
Earnings Before Taxes 16,002 19,068 14,047 18,170 19,113 21,140
Income Tax 4,278 5,215 3,811 6,389 6,572 7,642
Net Income 11,724 13,853 10,236 11,781 12,541 13,498
Number of shares outstanding 18,000 18,000 18,000
25,000
25,000 25,000
Balance Sheet
Cash & Cash Equiv 47,409 45,133 29,134 11,397 11,287 12,929
Accounts Receivable 29,299 30,343 31,527 10,699 10,557 11,343
Inventory 12,133 12,355 18,199 22,328 23,290 24,426
Total Current Assets 88,841 87,831 78,860 44,424 45,134 48,698
Net Property, Plant, & Equipment 25,119 22,471 20,624 71,066 71,970 74,672
Intangible Assets 8,941 8,816 8,744 11,513 11,246 10,203
Total Assets 122,901 119,118 108,228 127,003 128,350 133,573
Accounts Payable 51,161 49,661 47,559 41,912 49,147 53,440
Short-Term Debt 11,605 10,999 4,308 33,341 17,095 16,738
Long-Term Debt 16,477 4,399 987 11,430 16,814 18,703
Shareholders Equity 43,658 54,059 55,374 40,320 45,295 44,692
Total Liabilities & Equity 122,901 119,118 108,228 127,003 128,351 133,573
Dupont Analysis:
Net Profit Margin 19.9% 21.7% 20.5% 3.4% 3.6% 3.9%
Total Asset Turnover 0.48 0.54 0.46 2.76 2.71 2.62
Equity Multiplier 2.82 2.20 1.95 3.15 2.83 2.99
Return on Equity 26.9% 25.6% 18.5% 29.2% 27.7% 30.2%
Current Ratio 1.42 1.45 1.52 0.59 0.68 0.69
Quick Ratio 1.22 1.24 1.17 0.29 0.33 0.35
Cash Ratio 0.76 0.74 0.56 0.15 0.17 0.18
Inventory Turnover (Sales basis) 4.8 5.2 2.7 15.7 14.9 14.3
Accounts Receivable Turnover 2.0 2.1 1.6 32.7 32.9 30.8
Fixed Asset Turnover 2.3 2.8 2.4 4.9 4.8 4.7
Debt Ratio 64% 55% 49% 68% 65% 67%

Answer & Explanation Solved by verified expert

3.7 Ratings (476 Votes)

Cash conversion cycle Days of inventory Days of sales Days of payables 365 Accounts receivable turnover 365 Inventory turnover Sales Basis Days of payable sales basis So in order to calculate cash conversion cycle we need to calculate days of payables Other two ratios are See Answer

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		Firm A			Firm B
Income Statement	2016	2015	2014	2016	2015	2014
Revenues	58,811	63,740	49,853	350,052	347,379	349,894
Cost of Goods Sold	35,830	38,206	30,616	258,040	257,846	260,776
Gross Profit	22,981	25,534	19,237	92,012	89,533	89,118
Operating Expenses	6,611	6,116	4,923	72,752	69,315	66,727
Operating Income	16,370	19,418	14,314	19,260	20,218	22,391
Interest & Other Non-Oper Exp	368	350	267	1,090	1,105	1,251
Earnings Before Taxes	16,002	19,068	14,047	18,170	19,113	21,140
Income Tax	4,278	5,215	3,811	6,389	6,572	7,642
Net Income	11,724	13,853	10,236	11,781	12,541	13,498

Number of shares outstanding	18,000	18,000	18,000	25,000	25,000	25,000

Balance Sheet
Cash & Cash Equiv	47,409	45,133	29,134	11,397	11,287	12,929
Accounts Receivable	29,299	30,343	31,527	10,699	10,557	11,343
Inventory	12,133	12,355	18,199	22,328	23,290	24,426
Total Current Assets	88,841	87,831	78,860	44,424	45,134	48,698
Net Property, Plant, & Equipment	25,119	22,471	20,624	71,066	71,970	74,672
Intangible Assets	8,941	8,816	8,744	11,513	11,246	10,203
Total Assets	122,901	119,118	108,228	127,003	128,350	133,573

Accounts Payable	51,161	49,661	47,559	41,912	49,147	53,440
Short-Term Debt	11,605	10,999	4,308	33,341	17,095	16,738
Long-Term Debt	16,477	4,399	987	11,430	16,814	18,703
Shareholders Equity	43,658	54,059	55,374	40,320	45,295	44,692
Total Liabilities & Equity	122,901	119,118	108,228	127,003	128,351	133,573

Dupont Analysis:
Net Profit Margin	19.9%	21.7%	20.5%	3.4%	3.6%	3.9%
Total Asset Turnover	0.48	0.54	0.46	2.76	2.71	2.62
Equity Multiplier	2.82	2.20	1.95	3.15	2.83	2.99
Return on Equity	26.9%	25.6%	18.5%	29.2%	27.7%	30.2%

Current Ratio	1.42	1.45	1.52	0.59	0.68	0.69
Quick Ratio	1.22	1.24	1.17	0.29	0.33	0.35
Cash Ratio	0.76	0.74	0.56	0.15	0.17	0.18

Inventory Turnover (Sales basis)	4.8	5.2	2.7	15.7	14.9	14.3
Accounts Receivable Turnover	2.0	2.1	1.6	32.7	32.9	30.8
Fixed Asset Turnover	2.3	2.8	2.4	4.9	4.8	4.7

Debt Ratio	64%	55%	49%	68%	65%	67%