Comparative financial statement data for Bedene Corporation and Groneman Corpora
ID: 2364583 • Letter: C
Question
Comparative financial statement data for Bedene Corporation and Groneman Corporation, two competitors, appear below. All balance sheet data are as of December 31, 2010.Bedene Corporation Groneman Corporation
2010 2010
Net sales $1,900,000 $620,000
Cost of goods sold 1,175,000 340,000
Operating expenses 303,000 98,000
Interest expense 9,000 3,800
Income tax expense 85,000 36,000
Current assets 407,200 190,336
Plant assets (net) 532,000 139,728
Current liabilities 66,325 40,348
Long-term liabilities 108,500 29,620
Cash from operating activities 138,000 36,000
Capital expenditures 90,000 20,000
Dividends paid 36,000 15,000
Average number of shares outstanding 100,000 50,000
(a) Determine the relative profitability of the companies by computing the net income and earnings per share for each company for 2010. (Round earnings per share to 2 decimal places, e.g. 17.54.)
Bedene Corporation Groneman Corporation
Net Income
Earnings per Share
Who is more profitable?
bedene
(b) Determine the relative liquidity of the companies by computing working capital and the current ratios for each company for 2010. (Round current ratios to 1 decimal place, e.g. 2.5.)
Bedene Corporation Groneman Corporation
Working Capital $ 340875 $149988
Current Ratios 6.14 : 1 4.72 : 1
Who is more liquid?
Bedene
(c) Determine the relative solvency of the companies by computing the debt to total assets ratio and the free cash flow for each company for 2010. (Round debt to total assets ratio to 1 decimal place, e.g. 15.5.)
Bedene Corporation Groneman Corporation
Debt to total assets ratio % %
Free cash flow $ $
Who is more solvent?
Bedene
Explanation / Answer
`
Duran corporation
Keepers Corporation
Net sales
$1,900,000
$620,000
Less: cost of goods sold
1,175,000
340,000
Gross margin
725,000
280,000
Less: Operating expenses
303,000
98,000
Net operating income
422,000
182,000
Less: Interest expenses
9,000
3,800
Less: income tax expenses
85,000
36,000
Net income
328,000
142,200
Net income % of sales
17.26%
22.93%
Earning per share
Net income/Average number of shares
Net income
328,000
142,200
Average number of shares outstanding
100,000
50,000
Earning per share
3.28
2.84
Net Income if compared as % to sales Kiepert Company’s performance of 22.93% is better than Bedene Company performance of 17.26%. However Earnings per share of Bedene company is 3.28 which is more than Kiepert company’s of 2.84 .
Bedene is more profitable.
(b)
Current assets
407,200
190,336
Current liabilities
66,325
40,348
Working capital
Current assets-current liabilities
$340,875
$149,988
Current ratio
Current assets/Current liabilities
6.13:1
4.71:1
Benede Company is more liquidit as their current ratio is 6.13:1, which is more than Kiepert Company’s current ratio of 5.64:1
(c)
Debt to total assets
Total debt
174,825
69,968
Total assets
942,200
330,064
Debt to total assets
Total debt/Total assets
0.19:1
0.21:1
Free cash flow:
Cash from operating activities
138,000
36,000
Less: capital expenditure
90,000
20,000
Less: dividends
36,000
15,000
Free cash flow:
12,000
1,000
Relative solvency of Benede Company is better than Kiepert Company. The debt to total assets ratio is0.19.1only, which indicates that the company has more of its own funds.
Further, Free cash flow is also better in case of Benede company, which is almost 9% of cash from operating activities, than Kiepert company, which gas only 2.77 %. Hence the Benede Company’s free cash flow is 3 times more.
`
Duran corporation
Keepers Corporation
Net sales
$1,900,000
$620,000
Less: cost of goods sold
1,175,000
340,000
Gross margin
725,000
280,000
Less: Operating expenses
303,000
98,000
Net operating income
422,000
182,000
Less: Interest expenses
9,000
3,800
Less: income tax expenses
85,000
36,000
Net income
328,000
142,200
Net income % of sales
17.26%
22.93%
Earning per share
Net income/Average number of shares
Net income
328,000
142,200
Average number of shares outstanding
100,000
50,000
Earning per share
3.28
2.84
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