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Selected financial data of two intense competitors in a recent year are presented here (in millions) ABC LTD XYZ LTD STATEMENT OF PROFIT OR LOSS DATA Net sales ABC $40 000 XYZ $82 000 Cost of sales ABC (32 000) XYZ (65 000) Selling and administrative expenses ABC (7 200) XYZ (13 000) Finance expense ABC -600 XYZ (1 000) Gain on sale of equipment 800 200 Income tax expense (300) (1 200) Profit $700 $2 000 STATEMENT OF FINANCIAL POSITION DATA (END-OF-YEAR) Current assets $11 000 $11 000 Property, plant and equipment (net) 9 000 17 481 Total assets $20 000 $28 481 Current liabilities $5 500 $9 000 Non-current liabilities 8 200 11 000 Total equity 6 300 8 481 Total liabilities and equity $20 000 $28 481 BEGINNING-OF-YEAR BALANCES Total assets $17 504 $26 441 Current liabilities 5 698 9 981 Total equity 6 093 10 753 OTHER DATA Average net receivables $5 500 $2 200 Average inventory 5 000 8 000 Net cash provided by operating activities 1 000 2 500 Required: a
Selected financial data of two intense competitors in a recent year are presented here (in millions)
ABC LTD
XYZ LTD
STATEMENT OF PROFIT OR LOSS DATA
Net sales
ABC $40 000
XYZ $82 000
Cost of sales
ABC (32 000)
XYZ (65 000)
Selling and administrative expenses
ABC (7 200)
XYZ (13 000)
Finance expense
ABC -600
XYZ (1 000)
Gain on sale of equipment
800
200
Income tax expense
(300)
(1 200)
Profit
$700
$2 000
STATEMENT OF FINANCIAL POSITION DATA (END-OF-YEAR)
Current assets
$11 000
$11 000
Property, plant and equipment (net)
9 000
17 481
Total assets
$20 000
$28 481
Current liabilities
$5 500
$9 000
Non-current liabilities
8 200
11 000
Total equity
6 300
8 481
Total liabilities and equity
$20 000
$28 481
BEGINNING-OF-YEAR BALANCES
Total assets
$17 504
$26 441
Current liabilities
5 698
9 981
Total equity
6 093
10 753
OTHER DATA
Average net receivables
$5 500
$2 200
Average inventory
5 000
8 000
Net cash provided by operating activities
1 000
2 500
Required:
a. For each entity, calculate the following: (6 marks)
- Current ratio.
- Receivables turnover.
- Average collection period.
- Profit margin.
- Return on assets.
- Debt to total assets ratio.
(Hint: Use beginning of year information provided to calculate beginning of year balance for total liabilities.)
b. Use the ratios that you calculated in (a) to compare the two entities. What is you finding from the comparison
Expert Solution
A.) Please find Attached.
B.)
Current ratio and turnover ratios are liquidity ratio. XYZ has better liquidity if collection period is considered whereas current ratio of ABC is very ideal.
The debt equity structure is quite similar.
Profit margin is of XYZ is better than ABC ltd.
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