Financial Accounting
9th Edition
ISBN: 9781259222139
Author: Robert Libby, Patricia Libby, Frank Hodge Ch
Publisher: McGraw-Hill Education
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Chapter 13, Problem 13.1AP
To determine
Compare the two Companies as a potential investment based on the ratios.
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Check out a sample textbook solutionStudents have asked these similar questions
Coke and Pepsi are well-known international brands. Coca-Cola Co. sells more than $34.5 billion each year while annual sales of
PepsiCo products exceed $66 billion. Compare the two companies as a potential investment based on the following ratios as reported
by csimarket.com for the twelve months ended September 27, 2019:
Ratio
a. Gross profit percentage
b. Net profit margin
c. EPS
d. Inventory turnover ratio
e. Current ratio.
f. Debt-to-assets
g. P/E ratio
a. Gross profit percentage
b. Net profit margin
c. EPS
Coca-Cola
61.30%
22.70%
$ 1.66
4.20
0.62
0.76
32.50
d. Inventory turnover ratio
e. Current ratio
f. Debt-to-assets
g. P/E ratio
PepsiCo
55.00%
18.80%
$ 8.82
8.30
Required:
1. For each ratio listed, indicate whether it would be used to compare profitability, liquidity, or solvency, or whether it is not applicable
(NA) to comparing companies.
0.95
0.82
15.50
DuPont Equation: The Rangoon Timber Company has the following ratios:
Net sales/Total assets = 2.23; ROA = 9.69%; ROE = 16.4%
What are Rangoon’s profit margin and debt ratios?
Based on the ratio analysis below, in which company would you be willing to invest and why?
RATIOS
Ford Motor Co
General Motors Co
ANALYSIS
Profitability Ratios (%)
Gross Margin
15.01
17.9
General Motors Company (GM) has higher ratios than Ford Motors(FM) which indicates GM has higher profitability than FM. Particularly the EBITDA margin and operating margins reflect GM has an edge over FM.
EBITDA Margin
8.66
15.55
Operating Margin
2
3
Pre-Tax Margin
2.71
5.81
Effective Tax Rate
14.96
5.54
Financial Strength
Quick Ratio
1.04
0.73
Quick and Current ratios show that FM is in a much better position to meet short term obligations and daily operating expenses. The Debt/ Equity of FM is higher than GM. FM is more leveraged compared to GM which shows there's more debt in FM balance sheet. Lastly, the interest coverage ratio of GM is much higher showing GM is in a better position to service its interest expense on debt.
Current Ratio
1.2
0.92…
Chapter 13 Solutions
Financial Accounting
Ch. 13 - Who are the primary users of financial statements?Ch. 13 - When considering an investment in stock, investors...Ch. 13 - How does product differentiation differ from cost...Ch. 13 - What are the two general methods for making...Ch. 13 - What are component percentages? Why are they...Ch. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What do profitability ratios focus on? What is an...Ch. 13 - What do turnover ratios focus on? What is an...Ch. 13 - What do liquidity ratios focus on? What is an...Ch. 13 - What do solvency ratios focus on? What is an...
Ch. 13 - What do market ratios focus on? What is an example...Ch. 13 - Prob. 12QCh. 13 - Explain why rapid growth in total sales might not...Ch. 13 - A company has total assets of 500,000 and...Ch. 13 - Prob. 2MCQCh. 13 - Prob. 3MCQCh. 13 - Prob. 4MCQCh. 13 - Prob. 5MCQCh. 13 - Prob. 6MCQCh. 13 - Prob. 7MCQCh. 13 - Prob. 8MCQCh. 13 - Prob. 9MCQCh. 13 - Prob. 10MCQCh. 13 - Prob. 13.1MECh. 13 - Prob. 13.2MECh. 13 - Prob. 13.3MECh. 13 - Computing the Financial Leverage Percentage...Ch. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Prob. 13.6MECh. 13 - Prob. 13.7MECh. 13 - Prob. 13.8MECh. 13 - Prob. 13.9MECh. 13 - Prob. 13.10MECh. 13 - Using Financial Information to Identify Companies...Ch. 13 - Prob. 13.2ECh. 13 - Prob. 13.3ECh. 13 - Prob. 13.4ECh. 13 - Prob. 13.5ECh. 13 - Prob. 13.6ECh. 13 - Prob. 13.7ECh. 13 - Prob. 13.8ECh. 13 - Prob. 13.9ECh. 13 - Prob. 13.10ECh. 13 - Inferring Financial Information from Ratios E13-11...Ch. 13 - Prob. 13.12ECh. 13 - Prob. 13.13ECh. 13 - Prob. 13.1PCh. 13 - Prob. 13.2PCh. 13 - Prob. 13.3PCh. 13 - Prob. 13.4PCh. 13 - Prob. 13.5PCh. 13 - Computing Comparative Financial Statements and...Ch. 13 - Analyzing Financial Statements Using Ratios Use...Ch. 13 - Prob. 13.8PCh. 13 - Prob. 13.9PCh. 13 - Prob. 13.1APCh. 13 - Prob. 13.2APCh. 13 - Calculating Profitability, Turnover, Liquidity,...Ch. 13 - Prob. 13.4APCh. 13 - Prob. 13.5APCh. 13 - Prob. 13.6APCh. 13 - Prob. 13.1CPCh. 13 - Prob. 13.2CPCh. 13 - Comparing Companies within an Industry Refer to...Ch. 13 - Prob. 13.4CPCh. 13 - Inferring Information from the DuPont Model Ratios...Ch. 13 - Prob. 13.6CP
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