Peanut Queen and Lord of Ice are two competitors selling ice-cream. Below is the information pertaining to the two businesses for the financial year ended June 30, 2021. Peanut Queen Lord of Ice Net Profit ($) 105,000 280,000 Cost of Goods Sold ($) 100,000 1,000,000 Total Assets ($) 500,000 800,000 Total Liabilities 250,000 300,000 Gross Profit ($) 110,000 600,000 Lisa has capital to invest in one of the businesses. She likes peanut butter
Peanut Queen and Lord of Ice are two competitors selling ice-cream. Below is the information pertaining to the two businesses for the financial year ended June 30, 2021.
|
|
Peanut Queen |
Lord of Ice |
|
Net Profit ($) |
105,000 |
280,000 |
|
Cost of Goods Sold ($) |
100,000 |
1,000,000 |
|
Total Assets ($) |
500,000 |
800,000 |
|
Total Liabilities |
250,000 |
300,000 |
|
Gross Profit ($) |
110,000 |
600,000 |
Lisa has capital to invest in one of the businesses. She likes peanut butter ice-cream but needs to consider the financial performance of the two businesses to make an informed investment decision.
Required:
In the table below, calculate Net Profit Margin, Asset Turnover, Financial Leverage, and Return on Equity (ROE) ratios for the two businesses.
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|
Peanut Queen |
Lord of Ice |
|
Net Profit Margin |
|
|
|
Asset Turnover |
|
|
|
Financial Leverage |
|
|
|
ROE |
|
|
Based on the financial performance alone, which one of the two businesses would you recommend to Lisa to invest in? Considering the components of the DuPont model, which component is driving the financial performance of the business you chose?
Provide one example of non-financial information Lisa could consider in addition to the ratios calculated above when choosing between the two businesses. Briefly explain how that example of non-financial information could assist Lisa in her decision-making process.
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