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[The following information applies to the questions displayed below.]

Summary information from the financial statements of two companies competing in the same industry follows.

2a. For both companies compute the (a) profit margin ratio, (b) total asset turnover, (c) return on total assets, and (d) return on common stockholders’ equity. Assuming that share and each company’s stock can be purchased at $105 per share, compute their (e) price-earnings ratios and (f) dividend yields. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
2b. Identify which company’s stock you would recommend as the better investment.

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For both companies compute the profit margin ratio.

Barco
Company Kyan
Company Barco
Company Kyan
Company Data from the current year-end balance sheets Data from the current year’s income statement Assets Sales $ 770,000 $ 925,200 Cash $ 19,500 $ 32,000 Cost of goods sold 590,100 640,500 Accounts receivable, net 34,400 56,400 Interest expense 8,200 15,000 Current notes receivable (trade) 10,000 8,600 Income tax expense 14,800 25,542 Merchandise inventory 84,440 138,500 Net income 156,900 244,158 Prepaid expenses 6,100 7,400 Basic earnings per share 3.92 5.93 Plant assets, net 370,000 313,400 Cash dividends per share 3.81 4.03 Total assets $ 524,440 $ 556,300 Beginning-of-year balance sheet data Liabilities and Equity Accounts receivable, net $ 30,800 $ 51,200 Current liabilities $ 62,340 $ 97,300 Current notes receivable (trade) 0 0 Long-term notes payable 86,800 105,000 Merchandise inventory 65,600 111,400 Common stock, $5 par value 200,000 206,000 Total assets 378,000 422,500 Retained earnings 175,300 148,000 Common stock, $5 par value 200,000 206,000 Total liabilities and equity $ 524,440 $ 556,300 Retained earnings 170,800 69,878

Explanation / Answer

For both companies compute the profit margin ratio.

) Profit Margin Ratio Company Choose Numerator: / Choose Denominator: = Profit margin ratio net profit / sales = Profit margin ratio Barco 156900 / 770000 = 20.38 % Kyan 244158 / 925200 = 26.39 %v

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