- A Topgun And Riverstream Are The Competitors In The Industrial Plastic Manufacturing Industry You Are Provided With T 1 (116.69 KiB) Viewed 26 times
(a) TopGun and RiverStream are the competitors in the industrial plastic manufacturing industry. You are provided with the following financial data. Solve the following
questions. Total Sales EBIT Annual Interest TopGun (MYR) 25,000,000 6,250,000 100,000 3,690,000 RiverStream (MYR) 10,000,000 25,000,000 6,250,000 500,000 Earnings available to common stockholders Total Assets Total Equity 9,000,000 5,000,000 (i) Calculate the debt ratio and times interest earned ratio for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other. (2 marks) 3,450,000 10,000,000 (ii) Calculate the following profitability ratios for the two companies. Please discuss their profitability relative to one another. 1. Operating profit margin 2. Net profit margin 3. Return on total assets 4. Return on common equity (4 marks)
(iii) Discuss the effect of the larger debt that RiverStream has on its profitability. What kind of risk do you face if you were to invest in RiverStream? (2 marks)