Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations 2 years ago and Roak started 5 years ago. In the current year, both companies pay 7% interest on their debt to creditors. The following additional information is available. Total asset turnover Return on total assets. Profit margin ratio Sales Current Year 3.4 9.0% 2.7% $425,000 Roak Company 1 Year Ago 3.1 10.2% 2.8% $395,000 Required 1 Required 2 Required 3 2 Years Ago Current Year 3.3 10.8% 2.6% $411,000 1.8 5.9% 3.4% $225,000 Complete this question by entering your answers in the tabs below. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets? 1. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets? 2. Which company has the better rate of growth in sales? 3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt, in the case of (a) Roak and (b) Clay? Clay Company 1 Year Ago 1.8 5.6% 3.6% $185,000 2 Years Ago 1.4 5.3% 3.5% $125,000 (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets?
Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations 2 years ago and Roak started 5 years ago. In the current year, both companies pay 7% interest on their debt to creditors. The following additional information is available. Total asset turnover Return on total assets. Profit margin ratio Sales Current Year 3.4 9.0% 2.7% $425,000 Roak Company 1 Year Ago 3.1 10.2% 2.8% $395,000 Required 1 Required 2 Required 3 2 Years Ago Current Year 3.3 10.8% 2.6% $411,000 1.8 5.9% 3.4% $225,000 Complete this question by entering your answers in the tabs below. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets? 1. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets? 2. Which company has the better rate of growth in sales? 3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt, in the case of (a) Roak and (b) Clay? Clay Company 1 Year Ago 1.8 5.6% 3.6% $185,000 2 Years Ago 1.4 5.3% 3.5% $125,000 (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations 2 years ago and Roak
started 5 years ago. In the current year, both companies pay 7% interest on their debt to creditors. The following additional information
is available.
Total asset turnover
Return on total assets
Profit margin ratio
Sales
Current Year
3.4
9.0%
2.7%
$425,000
Required 1 Required 2
Roak Company
1 Year Ago
3.1
10.2%
2.8%
$395,000
1. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on
assets?
2. Which company has the better rate of growth in sales?
3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate
on debt, in the case of (a) Roak and (b) Clay?
Complete this question by entering your answers in the tabs below.
Required 3
2 Years Ago Current Year
3.3
10.8%
2.6%
$411,000
1.8
5.9%
3.4%
$225,000
(a) Which company has the better profit margin?
(b) Which has the better asset turnover?
(c) Which has the better return on assets?
Clay Company
1 Year Ago 2 Years Ago
1.8
1.4
5.6%
3.6%
5.3%
3.5%
$185,000
$125,000
(a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on
assets?
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VIEWStep 3: Compute which company has the better rate of growth in sales
VIEWStep 4: 3a&b- Compute whether the companies successfully used the financial leverage
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