Problem: Comparative data for Oscar and Felix Company, two competitors, are presented below. The time frame for both companies is the same. All the amounts are in AED.
ABC Company XYZ Company
|
No.
|
Account
|
ABC Company
|
XYZ Company
|
|
1
|
Net sales
|
900,000
|
1,810,000
|
|
2
|
Cost of good sold
|
460,000
|
720,000
|
|
3
|
Operating expenses
|
330,000
|
255,000
|
|
4
|
Non-operating expenses
|
160,000
|
10,000
|
|
5
|
Income tax expense
|
10,000
|
65,000
|
|
6
|
Gain on the sale of assets
|
30,000
|
75,000
|
|
7
|
Extraordinary gain (loss)
|
170,000
|
(210,000)
|
|
8
|
Current assets
|
180,000
|
700,000
|
|
9
|
Total assets
|
600,000
|
1,600,000
|
|
10
|
Current liabilities
|
160,000
|
250,000
|
|
11
|
Long-term liabilities
|
190,000
|
200,000
|
Additional Information
Cash from operating activities 126,000 380,000
Capital expenditures 20,000 50,000
Dividends paid 40,000 15,000
Ending balance of inventory 80,000 300,000
Average number of shares
outstanding 200,000 400,000
Q1. Comment on the relative profitability of the companies by using the operating income and income from continuing from operation ratios. Are these rations appropriate from assessing relative profitability? Explain
Q2. Comment on the relative liquidity of the companies by using working capital, current ratio, and quick ratio. Which of the two ratios is more appropriate for assessing the liquidity of the firm?
Q3. Comment on the relative solvency of the companies.
Q4. What would be a good measure to assess the relative ability of the company to finance new investment? Which of the two firms are better suited for additional investment in long-term capital? Explain.