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 Yr. Prior Yr. Current Yr. Prior Yr.
Cash and short-term $638 $419 $16,635 $16,163
investments
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' $3,388 $2,911 $81,661 $75,057
equity
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 $2,190 $16,367
operations
(a) Calculate the following liquidity ratio for the current year, and discuss the relative liquity of the two companies.
(1) Current ratio.
(2) Quick (acid-test) ratio.
(3) Current cash debt coverage.
(4) Accounts receivable turnover.
(5) Inventory turnover.
(b) Calculate the following profitability ratios for the current year, and discuss the relative profitability of the two companies.
(1) Asset turnover.
(2) Profit margin on sales.
(3) Retun on assets.
(4) Return on common stockholders' equity.
(c) Calculate the following solvency ratios fo rthe current year, and discuss the relative solvency of the two companies.
(1) Debt to assets.
(2) Times iterest earned.