Identify which company’s shares you would recommend as the better investment. Provide explanations. Liquidity Panda Koala Working capital 94,100 144,750 Current ratio 2.53 2.55 Quick/acid-test ratio 1.08 1.06 Solvency Panda Koala Debt ratio 0.32 0.36 Debt-to-equity ratio 0.47 0.56 Time interest earned 23.41times 19.05times Efficiency Panda Koala Accounts (and notes) receivable turnover 20.18times 14.82times Days' sales in receivables (average collection period) 22days 27days Inventory turnover 7.70times 4.91times Days' sales in inventory 57days 82days Total asset turnover 1.83times 1.90times Profitability Panda Koala Gross profit margin 29.98 % 33.03 % Net profit margin 21.06 % 23.9 % Return on total assets 38.46 % 45.49 % Return on equity 55.77 % 64.96 % Market perspective Panda Koala Price-earnings (P/E) ratio 16.63times 13.69times Dividend yield 5.06% 5.07%
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Identify which company’s shares you would recommend as the better investment. Provide explanations.
Liquidity Panda Koala
Quick/acid-test ratio 1.08 1.06
Solvency Panda Koala
Debt ratio 0.32 0.36
Debt-to-equity ratio 0.47 0.56
Time interest earned 23.41times 19.05times
Efficiency Panda Koala
Accounts (and notes) receivable turnover 20.18times 14.82times
Days' sales in receivables (average collection period) 22days 27days
Inventory turnover 7.70times 4.91times
Days' sales in inventory 57days 82days
Total asset turnover 1.83times 1.90times
Profitability Panda Koala
Gross profit margin 29.98 % 33.03 %
Net profit margin 21.06 % 23.9 %
Return on total assets 38.46 % 45.49 %
Return on equity 55.77 % 64.96 %
Market perspective Panda Koala
Price-earnings (P/E) ratio 16.63times 13.69times
Dividend yield 5.06% 5.07%
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