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  3. presented below are condensed financial statements adapted from those of...

Question: presented below are condensed financial statements adapted from those of...

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Presented below are condensed financial statements adapted from those of two actual companies competing as the primary players in a specialty area of the food manufacturing and distribution industry. ($ in millions, except per share amounts.)

Balance Sheets

Metropolitan

Republic

Assets

Cash

$

282.3

$

43.1

Accounts receivable (net)

513.7

416.0

Short-term investments

8.3

Inventories

562.4

719.2

Prepaid expenses and other current assets

216.6

576.7

Current assets

$

1,575.0

$

1,763.3

Property, plant, and equipment (net)

2,702.2

2,656.5

Intangibles and other assets

297.3

597.9

Total assets

$

4,574.5

$

5,017.7

Liabilities and Shareholders’ Equity

Accounts payable

$

572.9

$

781.2

Short-term notes

312.1

644.4

Accruals and other current liabilities

685.2

620.5

Current liabilities

$

1,570.2

$

2,046.1

Long-term debt

648.6

648.3

Deferred tax liability

474.6

703.7

Other long-term liabilities

215.0

193.1

Total liabilities

$

2,908.4

$

3,591.2

Common stock (par and additional paid-in capital)

229.9

440.0

Retained earnings

2,567.9

1,695.9

Less: Treasury stock

(1,131.7

)

(709.4

)

Total liabilities and shareholders’ equity

$

4,574.5

$

5,017.7

Income Statements

Net sales

$

5,794.0

$

7,856.2

Cost of goods sold

(2,818.0

)

(4,385.7

)

Gross profit

$

2,976.0

$

3,470.5

Operating expenses

(1,649.7

)

(2,933.2

)

Interest expense

(83.8

)

(43.6

)

Income before taxes

$

1,242.5

$

493.7

Tax expense

(295.7

)

(68.1

)

Net income

$

946.8

$

425.6

Net income per share

$

1.6

$

7.7

Evaluate and compare the two companies by responding to the following questions.
Note: Because comparative statements are not provided you should use year-end balances in place of average balances as appropriate.

Metropolitan

Republic

Return on Assets

%

%

Profit Margin

%

%

Asset Turnover

times

times

Return on Shareholders' Equity

%

%

Equity Multiplier

Acid-Test Ratio

Current Ratio

Receivables Turnover

times

times

Inventory Turnover

times

times

Times Interest Earned

times

times

Of the two companies, which appears riskier in terms of its ability to pay short-term obligations?

Which of the two companies manages their current assets more efficiently?

From the perspective of a creditor, which company offers the most comfortable margin of safety in terms of its ability to pay fixed interest charges?

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