Selected ratios for 2015 for two companies in the office supply industry are presented below. Answer the questions that follow about Walker and Diesel. Each question is worth 3 marks each.
|
Ratio
|
Puck
|
Stick
|
Industry Average
|
|
Asset turnover
|
2.6x
|
2.2x
|
2.5x
|
|
Average collection period
|
31 days
|
35 days
|
36 days
|
|
Cash current debt coverage
|
0.3x
|
0.10x
|
0.20x
|
|
Current ratio
|
1.7:1
|
3.0:1
|
1.6:1
|
|
Debt to total assets
|
50%
|
30%
|
50%
|
|
Earnings per share
|
$3.50
|
$0.40
|
Not available
|
|
Gross profit margin
|
23%
|
40%
|
27%
|
|
Inventory turnover
|
6x
|
3x
|
5x
|
|
Payout ratio
|
8%
|
22%
|
10%
|
|
Price-earnings ratio
|
29x
|
45x
|
38x
|
|
Profit margin
|
5%
|
4%
|
4%
|
|
Return on assets
|
12%
|
8%
|
10%
|
|
Return on common shareholders' equity
|
25%
|
13%
|
16%
|
|
Times interest earned
|
4.2x
|
8.6x
|
7.1x
|
- Comment on how successful each company appears to managing its accounts receivable. Terms are net 30 for both companies.
- How well does each company appear to be managing its inventory?
- Which company is more solvent?
- The gross profit for Puck is lower than Stick's and the industries. Provide two reasons why this would be the case?
- Which company would investors believe would have greater prospects for growing earning?