the allen company and the barker company are competitors in the same industry 544447
The Allen Company and the Barker Company are competitors in the same industry.
Selected financial data from their 2001 statements are shown below.
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Balance Sheet December 31, 2001 |
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|
Allen |
Barker |
|
|
Company |
Company |
|
|
Cash |
$ 10,000 |
$ 35,000 |
|
Accounts receivable |
45,000 |
120,000 |
|
Inventory |
70,000 |
190,000 |
|
Investments |
40,000 |
100,000 |
|
Intangibles |
11,000 |
20,000 |
|
Property, plant, and equipment |
180,000 |
520,000 |
|
Total assets |
$356,000 |
$985,000 |
|
Accounts payable |
$ 60,000 |
$165,000 |
|
Bonds payable |
100,000 |
410,000 |
|
Preferred stock, $1 par |
50,000 |
30,000 |
|
Common Stock, $10 par |
100,000 |
280,000 |
|
Retained earnings |
46,000 |
100,000 |
|
Total liabilities and capital |
$356,000 |
$985,000 |
|
Income Statement For the Year Ended December 31, 2001 |
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|
Allen Company |
Barker Company |
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Sales |
$1,050,000 |
$2,800,000 |
|
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Cost of goods sold |
725,000 |
2,050,000 |
|
|
Selling and administrative expenses |
230,000 |
580,000 |
|
|
Interest expense |
10,000 |
32,000 |
|
|
Income taxes |
42,000 |
65,000 |
|
|
Net income |
$ 43,000 |
$ 73,000 |
|
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Industry Averages: |
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Times interest earned |
7.2 times |
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Debt ratio |
40.3% |
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Debt/equity |
66.6% |
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Debt to tangible net worth |
72.7% |
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Required a. Compute the following ratios for each company:
1. Times interest earned 3. Debt/equity ratio
2. Debt ratio 4. Debt to tangible net worth
b. Is Barker Company in a position to take on additional long-term debt? Explain.
c. Which company has the better long-term debt position? Explain.
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