The question is about ratio analysis finding out liquidity and solvency of the company.
Comparative financial statement data for Arthur Corporation and Lancelot Corporation, two competitors, appear below. All balance sheet data are as of December 31, 2007.
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Arthur Corporation
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Lancelot Corporation
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|
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2007
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2007
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Net sales
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$1,950,000
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$620,000
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Cost of goods sold
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1,175,000
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340,000
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Operating expenses
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303,000
|
98,000
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Interest expense
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9,000
|
3,800
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Income tax expense
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85,000
|
36,000
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Current assets
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427,200
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190,336
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Plant assets (net)
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532,000
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139,728
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Current liabilities
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66,325
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35,348
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Long-term liabilities
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108,500
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29,620
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Additional information:
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Cash from operating activities
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$148,000
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$36,000
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Capital expenditures
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$90,000
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$20,000
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Dividends paid
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$36,000
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$15,000
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Average number of shares outstanding
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100,000
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50,000
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Instructions
a) Comment on the relative profitability of the companies by computing the net income and earnings per share for each company for 2007.
b) Comment on the relative liquidity of the companies by computing working capital and the current ratios for each company for 2007.
c) Comment on the relative solvency of the companies by computing the debt to total assets ratio and the free cash flow for each company for 2007.