Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Chapter 4, Problem 1BAIC
To determine
State the reasons for the relative levels of
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Comparison:1. Observe the trend of revenues for both companies. Which company has higher revenue?2. Observe the gross margin for both companies. Which company is more profitable?3. Observe the operating expenses for both companies. Which company has more operating expenses?4. Observe the net income for both companies. Which company is more profitable?5. Which company is more profitable using this type of analysis?
The
Golden
Fence Company and
Stone
Wall Corporation are competitors in manufacturing walls and fences. You are interested in comparing the two firms' profitability. Their income statements and other information are presented below.
LOADING...
(Click
the icon to view the comparative income statements.)
Golden
Fence is the larger company based on sales and total assets, so you perform the following steps to compare and analyze the companies.
Read the
requirements
LOADING...
.
Requirement a. Prepare common-size income statements. Comment on differences in the relative size of each line item. (Round percentages to the nearest tenth of a percent, X.X%.)
Percent of Sales
Golden Fence
Stone Wall
Golden Fence
Stone Wall
(amounts in millions)
Company
Corporation
Company
Corporation
Sales
$987,236
$67,450
%
%
Cost of goods sold
678,626
43,370
%
%
Gross profit
308,610
24,080…
The Table also provides financial indicators for the chemical and related products industry (Chemicals and Allied Products) for the year 2018. This will allow you to compare the performance of both firms J & J and Merck with the industry in which they compete for the same year.
Do you understand that the performance of firms is superior to the average performance of their competitors in the market? Justify your answer.
What adjustments or changes would you recommend to make each of the firms more attractive to shareholders and others interested in them? Justify your answer.
Company Name:
Year 2018
Chemicals and Allied Products Industry Ratios
…………..
Solvency or Debt Ratios
Merck
J&J
2018
Debt ratio
0.67
0.61
0.47
Debt-to-equity ratio
0.93
0.51
0.38
Interest coverage ratio
12.27
18.91
-9.43
Liquidity Ratios
Current ratio
1.17
1.47
3.47
Quick ratio
0.92
1.16
2.12
Cash…
Chapter 4 Solutions
Financial Reporting, Financial Statement Analysis and Valuation
Ch. 4 - Common-Size Analysis. Common-size analysis is a...Ch. 4 - Earnings per Share. Firm A reports an increase in...Ch. 4 - Prob. 3QECh. 4 - Profit Margin for ROA versus ROCE. Describe the...Ch. 4 - Concept and Measurement of Financial Leverage....Ch. 4 - Advantages of Financial Leverage. A company...Ch. 4 - Prob. 7QECh. 4 - Nucor, a steel manufacturer, reported net income...Ch. 4 - Phillips-Van Heusen, an apparel manufacturer,...Ch. 4 - TJX, Inc., an apparel retailer, reported net...
Ch. 4 - Boston Scientific, a medical device manufacturer,...Ch. 4 - Valero Energy, a petroleum company, reported net...Ch. 4 - Exhibit 4.22 presents selected operating data for...Ch. 4 - Microsoft Corporation (Microsoft) and Oracle...Ch. 4 - Prob. 17PCCh. 4 - Prob. 18PCCh. 4 - Texas Instruments (TI) designs and manufactures...Ch. 4 - JCPenney operates a chain of retail department...Ch. 4 - Prob. 21PCCh. 4 - Selected data for General Mills for 2007, 2008,...Ch. 4 - Prob. 23PCCh. 4 - Hasbro is a leading firm in the toy, game, and...Ch. 4 - Fitch sells casual apparel and personal care...Ch. 4 - Prob. 26PCCh. 4 - Starwood Hotels (Starwood) owns and operates many...Ch. 4 - Select data for Avis and Hertz for 2012 follow....Ch. 4 - Integrative Case 1.1 introduced the industry...Ch. 4 - Prob. 1ABICCh. 4 - Prob. 1ACICCh. 4 - Prob. 1BAICCh. 4 - Prob. 1BBICCh. 4 - Walmart and Carrefour follow similar strategies....Ch. 4 - Walmart and Carrefour follow similar strategies....
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