Presented below are condensed financial statements adapted from those of two act

Question

Presented below are condensed financial statements adapted from those of two actual companies competing as the primary players in a specialty area of the food manufacturing and distribution industry. ($ in millions, except per share amounts.)

Note: Because comparative statements are not provided you should use year-end balances in place of average balances as appropriate.

Required:

Calculate the rate of return on assets for the following companies

Calculate the return on assets for both companies.

Calculate the Rate of return on shareholders’ equity for the following companies

Calculate the equity multiplier for the following companies.

Calculate the acid-test ratio and current ratio for the following companies.

Calculate the receivables and inventory turnover ratios the following companies.

Calculate the times interest earned ratio for the following companies.

Balance Sheets Metropolitan Republic   Assets $ 179.3 $ 37.1   Cash   Accounts receivable (net) 422.7 325.0   Short-term investments — 4.7   Inventories 466.4 635.2   Prepaid expenses and other current assets 134.6 476.7     Current assets $ 1,203.0 $ 1,478.7   Property, plant, and equipment (net) 2,608.2 2,064.6   Intangibles and other assets 210.3 464.7        Total assets $ 4,021.5 $ 4,008.0   Liabilities and Shareholders’ Equity   Accounts payable $ 467.9 $ 691.2   Short-term notes 227.1 557.4   Accruals and other current liabilities 585.2 538.5     Current liabilities $ 1,280.2 $ 1,787.1   Long-term debt 535.6 542.3   Deferred tax liability 384.6 610.7   Other long-term liabilities 104.0 95.1        Total liabilities $ 2,304.4 $ 3,035.2   Common stock (par and additional paid-in capital) 144.9 335.0   Retained earnings 2,476.9 1,601.9   Less: treasury stock (904.7 ) (964.1 )         Total liabilities and shareholders’ equity $ 4,021.5 $ 4,008.0 Income Statements   Net sales $ 5,698.0 $ 7,768.2   Cost of goods sold (2,909.0 ) (4,481.7 )       Gross profit $ 2,789.0 $ 3,286.5   Operating expenses (1,743.7 ) (2,539.2 )   Interest expense (56.8 ) (46.6 )       Income before taxes $ 988.5 $ 700.7   Tax expense (394.7 ) (276.1 )       Net income $ 593.8 $ 424.6   Net income per share $ 2.40 $ 6.50

Explanation / Answer

Ratios Formula Metropoliton Republic Current ratio current asset / current liabilities $1203/$1280.2 0.94 $1478.7/$1787.1 0.83 acid test ratio (current asset - inventory-prepaid expenses)/ current liabilities $(1203-466.4-134.6)/$1280.2 0.47 $(1478.7-635.2-476.7)/$1787.1 0.21 Inventory turnover cost of goods sold / inventory 2909/466.4 6.24 4481.7/635.20 7.06 Times interest earned ratio Net Operating profit / interest (2789-1743.7) / 56.8 18.40 (3286.5-2539.2) / 46.60 16.04 The return on total assets. Net Income / total Assets 593.8/4021.5 0.15 424.6/ 4008 0.11 The return on equity Net Income/ Stcok holders' equity 593.8 / (144.9+2476.9-904.7) 0.35 424.6 /(335+1601.9-964.1) 0.44 Equity multiplier Total assets/ total shareholders' equity 4021.5/ (144.9+2476.9-904.7) 2.34 4008 /(335+1601.9-964.1) 4.12 Receivable turnover ratio net sales / accounts receivable 5698 / 422.7 13.48 7768.2 / 325 23.90

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