Question

Comparative financial statement data for Oriole Company and Blossom Company, two competitors, appear below. All balance sheet data are as of December 31, 2017.
Blossonm Company Oriole Company
2017 2017
Net sales $2,592,000 $892,800
Cost of goods sold 1,692,000 489,600
Operating expenses 407,520 141,120
Interest expense 12,960 5,472
Income tax expense 122,400 51,840
Current assets 501,300 191,836
Plant assets (net) 766,080 201,208
Current liabilities 95,508 48,551
Long-term liabilities 156,240 58,585
Net cash provided by operating
activities 198,720 51,840
Capital expenditures 129,600 28,800
Dividends paid on common stock 51,840 21,600
Weighted-average number of shares
outstanding 80,000 50,000
1. Compute the net income and earnings per share for each company for 2017.
2. Compute working capital and the current ratios for each company for 2017.
3. Compute the debt to assets ratio and the free cash flow for each company for 2017.

Answer 1

Answer:

a.                                           Blos som Co.      Oriole Company

Net sales                                $2,592,000     $892,800

Less: Cost of goods sold      $(1,692,000)        $(489,600)

Less: Operating expenses $(407,520)           $(141,120)

Less: Interest expense         $(12,960)              $(5,472)

Less; Income tax expense $(122,400)            $(51,840)

Net income                           $357,120             $204,768

Earning per shares = Net income / Weighted average number of shares

Blos som Co.

Earning per shares = $357,120 / 80,000

Earning per shares = $4.46

Oriole Company

Earning per shares = $204,768 / 50,000

Earning per shares = $4.10

b.                                       Blos som Company   Oriole Company

Current assets                         $501,300               $191,836

Less: Current liabilities           $(95,508)              $(48,551)

Working capital                     $405,792             $143,285

Current ratio = Current assets / Current liabilities

Blos som Co.

Current ratio = $501,300 / $95,508

Current ratio = $5.2

Oriole Company

Current ratio = $191,836 / $48,551

Current ratio = $4.0

3. Debt to assets = Total Liabilities / Total Assets

                               Blos som Company        Oriole Company

Total liabilities        $95,508 + $156,240     $48,551 + $58,585  

                                    = $251,748                     = $107,136

Total assets           $501,300 + $766,080      $191,836 + $201,208  

                                     = $1,267,380                  = $393,044

Debt to assets                 19.9%                              27.3%

                                     Blos som Company    Oriole Company

Net cash provided by         $198,720                  $51,840

operating activities

Less: Capital expenditure   $(129,600)               $(28,800)

Less: Dividends paid           $(51,840)                 $(21,600)

Free cash flow                      $17,280                  $1,440