Problem #4: Company A and Company B, two companies of approximately the same size and in same industry. Each company depreciates it plant assets (i.e., PPE) using the straight-line method. An investigation of their financial statements reveals the information shown below.: Company A $ 240,000 1,150,000 Company B $ 300,000 Net income Sales revenue 1,200,000 3,000,000 Total assets (average) Plant assets (average) Intangible assets (goodwill) 3,200,000 2,400,000 1,800,000 300,000 Required: a. For each company, calculate these values: Company A Company B Return on assets Profit margin Asset turnover b. Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales. What factors complicate your ability to compare the two companies?
Problem #4: Company A and Company B, two companies of approximately the same size and in same industry. Each company depreciates it plant assets (i.e., PPE) using the straight-line method. An investigation of their financial statements reveals the information shown below.: Company A $ 240,000 1,150,000 Company B $ 300,000 Net income Sales revenue 1,200,000 3,000,000 Total assets (average) Plant assets (average) Intangible assets (goodwill) 3,200,000 2,400,000 1,800,000 300,000 Required: a. For each company, calculate these values: Company A Company B Return on assets Profit margin Asset turnover b. Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales. What factors complicate your ability to compare the two companies?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Problem #4:
Company A and Company B, two companies of approximately the same size and in same industry. Each
company depreciates it plant assets (i.e., PPE) using the straight-line method. An investigation of their financial
statements reveals the information shown below.:
Company A
$ 240,000
1,150,000
Company B
$ 300,000
1,200,000
Net income
Sales revenue
Total assets (average)
Plant assets (average)
3,200,000
3,000,000
2,400,000
1,800,000
Intangible assets (goodwill)
300,000
Required:
a.
For each company, calculate these values:
Company A
Company B
Return on assets
Profit margin
Asset turnover
b. Based on your calculations in part (a), comment on the relative effectiveness of the two companies in
using their assets to generate sales. What factors complicate your ability to compare the two
companies?
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