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Use the financial ratios of company A and company B to answer the questions below.

Use the financial ratios of company A and company B to answer the questions below.

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?            _____

manish jayant 07-Sep-2020

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