Problem: Manitowoc Company and Caterpillar Corporation are both producers and sellers of large fixed assets. Caterpillar is substantially larger than Manitowoc. Financial information taken from each company’s financial statements is provided below.
|
|
Caterpillar |
|
Manitowoc |
|
|
(in millions) |
|
(in thousands) |
| Financial Highlights |
Current Year |
Prior Year |
|
Current Year |
Prior Year |
|
|
|
|
|
|
|
| Cash and short-term investments |
638 |
419 |
|
16,635 |
16,163 |
| Accounts receivable |
4,285 |
4,290 |
|
51,011 |
29,500 |
| Inventory |
1,921 |
1,835 |
|
52,928 |
36,793 |
| Other current assets |
803 |
865 |
|
14,571 |
14,082 |
|
Current assets |
7,647 |
7,409 |
|
135,145 |
96,538 |
| Total assets |
16,830 |
16,250 |
|
324,915 |
159,465 |
| Current liabilities |
6,049 |
5,498 |
|
110,923 |
54,064 |
| Total liabilities |
13,442 |
13,339 |
|
243,254 |
84,408 |
| Total stockholders' equity |
3,388 |
2,911 |
|
81,661 |
75,057 |
|
|
|
|
|
|
|
| Sales |
15,451 |
|
|
313,149 |
|
| Cost of goods sold |
12,000 |
|
|
237,679 |
|
| Interest expense |
191 |
|
|
1,865 |
|
| Income tax expense |
501 |
|
|
8,551 |
|
| Net income |
1,136 |
|
|
14,569 |
|
| Cash provided from operations |
2,190 |
|
|
16,367 |
|
Instructions:
Q1. Calculate the following liquidity ratios for the current year, and discuss the relative liquidity of the two companies.
| 1 |
Current ratio. |
1.26:1 |
1.35:1 |
|
1.22:1 |
1.77:1 |
| 2 |
Quick (acid-test) ratio. |
.81:1 |
.86:1 |
|
.61:1 |
.84:1 |
| 3 |
Current cash debt coverage. |
.38:1 |
|
|
.20:1 |
|
| 4 |
Accounts receivable turnover. |
3.6 times (101.4 days) |
|
7.8 times (46.8 days) |
| 5 |
Inventory turnover. |
6.4 times (57 days) |
|
5.3 times (68.9 days) |
Q2. Calculate the following profitability ratios for the current year, and discuss the relative profitability of the two companies.
| 1 |
Asset turnover. |
.93 times |
|
|
1.29 times |
| 2 |
Profit margin on sales. |
7.40% |
|
|
4.70% |
| 3 |
Return on assets. |
6.90% |
|
|
6% |
| 4 |
Return on common stockholders' equity. |
23.40% |
|
|
18.60% |
Q3. Calculate the following solvency ratios for the current year, and discuss the relative sol-vency of the two companies.
| 1 |
Debt to assets. |
79.90% |
82% |
|
74.90% |
52.90% |
| 2 |
Times interest earned. |
5.95 times |
|
|
7.81 times |
|