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[Step-by-Step] (Financial statement analysis) Lopez Electronics’ management has long viewed TKO Electronics as an industry leader and uses this firm as

Question: (Financial statement analysis) Lopez Electronics’ management has long viewed TKO Electronics as an industry leader and uses this firm as a model firm for analyzing its own performance. The balance sheets and income statements for the two firms are as follows:

Lopez Electronics, Inc. Balance Sheet ($000) TKO Electronics, Inc. Balance Sheet ($000)
Cash $2,000 $1,500
Accounts receivable 4,500 6,000
Inventories 1,500 2,500
Current assets $8,000 $10,000
Net fixed assets 16,000 25,000
Total assets $24,000 $35,000
Accounts payable $2,500 $5,000
Accrued expenses 1,000 1,500
Short-term notes payable 3,500 1,500
Current liabilities $7,000 $8,000
Long-term debt 8,000 4,000
Owners’ equity 9,000 23,000
Total liabilities and owners’ equity $24,000 $35,000
Lopez Electronics, Inc. Income Statement ($000) TKO Electronics, Inc. Income Statement ($000)
Net sales (all credit) $48,000 $70,000
Cost of goods sold -36,000 -42,000
Gross profit $12,000 $28,000
Operating expenses -8,000 -12,000
Net operating income $4,000 $16,000
Interest expense -1,150 -550
Earnings before taxes 2,850 15,450
Income taxes (40%) -1,140 -6,180
Net income $1,710 $9,270
  1. Calculate the following ratios for both Lopez and TKO:
Current ratio
Times interest earned
Inventory turnover
Total asset turnover
Operating profit margin
Operating return on assets
Debt ratio
Average collection period
Fixed asset turnover
Return on equity

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Deliverable: Word Document


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