Answer to Question #155571 in Finance for Hibba Saleem

Question

Best Way Cement Inc., and , Askari Cement Inc., are rivals in the manufacture of cement

industry . Some financial statement values for each company is as following. Use them in a ratio

analysis that compares the firms’ financial leverage and profitability.

Item Best Way Cement Inc., . Askari Cement Inc.

Total assets 120,000,000 120,000,000

Total equity (all common) 119,000,000 60,000,000

Total debt 12,000,000 5,000,000

Annual interest 1,200,000 500,000

Total sales 255,000,000 255,000,000

EBIT 61,250,450 61,250,450

Earnings available for

common stockholders

32,690,000 30,450,000

Calculate the following

a.)debt and coverage ratios for the two companies. Discuss their financial risk and ability to

cover the costs in relation to each other.

(1) Debt ratio

(2) Times interest earned ratio

b) Calculate the following profitability ratios for the two companies. Discuss their profitability

relative to each other.

(1) Net profit margin

(2) Return on total assets

(3) Return on common equity

Answer 1

Conclusion: based on the calculated coefficients, Best Way Cement Inc can be concluded that Askari Cement Inc, it has more financial risk than Askari Cement Inc , since the coverage coefficients are lower, the debt level is higher. Also, resource efficiency indicators are lower for Best Way Cement Inc .