Question: The company wants to invest some of
The company wants to invest some of its excess cash in trading securities and is considering two investments, The Paddle Company (PC) and Recreational Life Vests (RLV). The income statement, balance sheet, and other data for both companies follow for 2019 and 2018, as well as selected data for 2017:
Requirements:
1. Using the financial statements given, compute the following ratios for both companies for 2019 and 2018. Assume all sales are credit sales. Round all ratios to two decimal places.
a. Current ratio
b. Cash ratio
c. Inventory turnover
d. Accounts receivable turnover
e. Gross profit percentage
f. Debt ratio
g. Debt to equity ratio
2. Compare the companies’ performance for 2019 and 2018. Make a recommendation to Canyon Canoe Company about investing in these companies. Which company would be a better investment, The Paddle Company or Recreational Life Vests? Base your answer on ability to pay current liabilities, ability to sell merchandise and collect receivables, ability to pay long-term debt, profitability, and attractiveness as an investment.
Transcribed Image Text:
THE PADDLE COMPANY RECREATIONAL LIFE VESTS Comparative Financial Statements Comparative Financial Statements Years Ended December 31 Years Ended December 31 Income Statement 2019 2018 2017 2019 2018 2017 Net Sales Revenue $ 430,489 $ 425,410 $ 410,570 $ 383,870 Cost of Goods Sold 258,756 256,797 299,110 280, 190 Gross Profit 171,733 168,613 111,460 103,680 Operating Expenses 153,880 151,922 78,290 70,830 Operating Income 17,853 16,691 33.170 32,850 Interest Expense 865 788 2,780 2,980 Income before Income Tax 16,988 15,903 30,390 29,870 Income Tax Expense 5.137 4,809 8,780 8,630 Net Income $ 11,851 $ 11,094 S 21.610 S 21,240 Balance Sheet Assets Cash & Cash Equivalents $ 69.159 $ 70,793 $ 65,730 $ 55,270 Accounts Receivable 44,798 44,452 $ 44,104 39,810 38,650 $ 36,460 Merchandise Inventory 79,919 66,341 76,363 68,500 65,230 59,930 Other Current Assets 15,494 16,264 24,450 37,630 Total Current Assets 209,370 197,850 198,490 196,780 Long-term Assets 89,834 90,776 116,760 116,270 Total Assets S 299,204 S 288,626 S 276,482 $ 315,250 S313.050 $ 310,640
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