The Following Are Summaries from the Income Statements and Balance

The following are summaries from the income statements and balance sheets of Red Shoe, Inc.and Blue Shoe, Inc.
$\begin{array}{c} \text { RED SHOE, INC. } \\ \text { Consolidated Balance Sheets } \\ \text { (in millions) } \\\begin{array}{|l|r|r|}\hline& \text { May } 31\\ \hline \quad\quad\quad\quad\quad\text { \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad } & \quad\quad2014 & \quad2013 \\\hline\end{array}\\\begin{array}{|l|r|r|}\hline \text { Current assets: }\\\hline \text { Cash and cash equivalents } & \$ 634.0 & \$ 575.5 \\\hline \text { Accounts receivable, net of allowance } & 2,101.1 & 1,804.1 \\\hline \text { Inventories } & 1,514.9 & 1,373.8 \\\hline \text { Other current assets } & 429.9 & 401.3 \\\hline \text { Total current assets } & 4,679.9 & 4,154.7 \\\hline \text { Property, plant, and equipment, net } & 1,620.8 & 1614.5 \\\hline \text { Other long-term assets } & \underline{413.2} & \underline{670.8} \\\hline \text { Total assets } & \$ 6.713 .9 & \$ 6.440 .0 \\\hline\end{array}\\\text { liabilities and Stockholders' Equity }\\\begin{array}{|l|r|r|}\hline \text { Current liabilities: }\\\hline \text { Current portion of long-term debt } & \$ 205.7 & \$ 55.3 \\\hline \text { Notes payable } & 75.4 & 425.2 \\\hline \text { Accounts payable } & 572.7 & 504.4 \\\hline \text { Accrued liabilities } & 1,054.2 & 765.3 \\\hline \text { Income taxes payable } & \underline{107.2} & \underline{83.0} \\\hline \text { Total current liabilities } & 2,015.2 & 1,833.2 \\\hline \text { Long-term liabilities } & 708.0 & 767.8 \\\hline \text { Total liabilities } & 2,723.2 & 2,601.0\\\hline \text { Stockholders' equity: }\\\hline \text { Common stock } & 2.8 & 2.8 \\\hline \text { Contributed capital in excess of par value } & 589.0 & 538.7 \\\hline \text { Unearned stock compensation } & (0.6) & (5.1) \\\hline \text { Accumulated other comprehensive loss } & (239.7) & (192.4) \\\hline \text { Retained earnings } & 3,639.2 & 3,495.0 \\\hline \text { Total stockholders' equity } & 3,990.7 & 3,839.0 \\\hline \text { Total liabilities and stockholders' equity } & \$ 6.713 .9 & \$ 6.440 .0 \\\hline\end{array}\end{array}$ $\begin{array}{c}\text { RED SHOE, INC. } \\\text { Consolidated Statement of Income } \\\text { May 31, 2014 } \\\text { (in millions) } \\\begin{array}{|l|r|}\hline \text { Revenues } & \$ 10,697.0 \\\hline \text { Cost of sales } & 6,313.6 \\\hline \text { Gross profit } & 4,383.4 \\\hline \text { Operating expenses } & 3,137.6 \\\hline \text { Operating income } & 1,245.8 \\\hline \text { Interest expense } & 42.9 \\\hline \text { Other revenues and expenses } & \underline{79.9} \\\hline \text { Income before tax } & 1,123.0 \\\hline \text { Income taxes } & 382.9 \\\hline \text { Income before effect of accounting change } & 740.1 \\\hline \begin{array}{l}\text { Cumulative effect of accounting change, net } \\\text { of tax }\end{array} & \underline{266.1} \\\hline \text { Net income } & \$ 474.0\\\hline\end{array}\end{array}$
$\begin{array}{c} \text { BLUE SHOE, INC. } \\ \text { Consolidated Balance Sheets } \\ \text { (in millions) } \\\begin{array}{|l|r|r|}\hline& \text { May } 31\\ \hline \quad\quad\quad\quad\quad\text { \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad } & \quad\quad2014 & \quad2013 \\\hline\end{array}\\\begin{array}{|l|r|r|}\hline \text { Current assets: }\\\hline \text { Cash and cash equivalents } & \$ 34.5 & \$ 22.2 \\\hline \text { Accounts receivable, net of allowance } & 15.5 & 14.7 \\\hline \text { Inventories } & 27.2 & 28.4 \\\hline \text { Other current assets } & \underline{3.5} & \underline{4.2} \\\hline \text { Total current assets } & 80.7 & 69.5 \\\hline \text { Property, plant, and equipment, net } & 5.7 & 7.0 \\\hline \text { Other long-term assets } & 1.1 & 1.5 \\\hline \text { Total assets } & \$ 87.5 & \$ 78.0 \\\hline\end{array}\\\text { liabilities and Stockholders' Equity }\\\begin{array}{|l|r|r|}\hline \text { Current liabilities: }\\\hline \text { Accounts payable } & \$ 8.5 & \$ 6.6 \\\hline \text { Accrued liabilities } & 7.8 & 5.6 \\\hline \text { Total current liabilities } & 16.3 & 12.2 \\\hline \text { Long-term liabilities } & 2.5 & 2.6 \\\hline \text { Total liabilities } & \underline{18.8} & \underline{14.8} \\\hline \text { Stockholders' equity: } & & \\\hline \text { Common stock } & 2.3 & 2.3 \\\hline \text { Contributed capital in excess of par value } & 17.8 & 17.4 \\\hline \text { Unearned stock compensation } & (0.1) & (0.5) \\\hline \text { Accumulated other comprehensive loss } & (0.9) & (1.3) \\\hline \text { Treasury stock } & (6.3) & (5.4) \\\hline \text { Retained earnings } & \underline{55.9} & \underline{50.7} \\\hline \text { Total stockholders' equity } & \underline{68.7} & \underline{63.2} \\\hline \text { Total liabilities and stockholders' equity } & \$ 87.5 & \$ 78.0 \\\hline\end{array}\end{array}$ $\begin{array}{c}\text { BLUE SHOE, INC. } \\\text { Consolidated Statement of Income } \\\text { January 3, 2014 } \\\text { (in millions) } \\\begin{array}{|l|r|}\hline \text { Revenues } & \$ 133.5 \\\hline \text { Cost of sales } & 87.3 \\\hline \text { Gross profit } & 46.2 \\\hline \text { Operating expenses } & 37.3 \\\hline \text { Operating income } & 8.9 \\\hline \text { Interest expense } & (0.1) \\\hline \text { Other revenues and expenses } & 0.3 \\\hline \text { Income before tax } & 9.1 \\\hline \text { Income taxes } & 3.9 \\\hline \text { Net income } & \$ 5.2\\\hline\end{array}\end{array}$
(1)For both companies compute the following ratios for 2014:
(a)Current ratio
(b)Acid-test ratio
(c)Accounts receivable turnover
(d)Inventory turnover
(e)Days' sales in inventory
(f)Days' sales uncollected
Which company do you consider to be the better short-term credit risk? Explain.
(2)For both companies compute the following ratios for 2014:
(a)Profit margin ratio
(b)Return on total assets
(c)Return on common stockholders' equity
Which company do you consider to have better profitability ratios?