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 4.9 9.0% 4.2% $500,000 Roak Company 1 Year Ago 4.6 13.2% 4.3% $470,000 2 Years Ago 4.8 13.8% 4.1% $486,000 Clay Company Current Year 1 Year Ago 3.3 5.6% 6.6% $260,000 3.3 5.9% 6.4% $300,000 2 Years Ago 2.9 5.3% 6.5% $200,000 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?
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 4.9 9.0% 4.2% $500,000 Roak Company 1 Year Ago 4.6 13.2% 4.3% $470,000 2 Years Ago 4.8 13.8% 4.1% $486,000 Clay Company Current Year 1 Year Ago 3.3 5.6% 6.6% $260,000 3.3 5.9% 6.4% $300,000 2 Years Ago 2.9 5.3% 6.5% $200,000 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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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
4.9
9.0%
4.2%
$500,000
Roak Company
1 Year Ago
4.6
13.2%
4.3%
$470,000
2 Years Ago
4.8
13.8%
4.1%
$486,000
Current Year
3.3
5.9%
6.4%
$300,000
Clay Company
1 Year Ago
3.3
5.6%
6.6%
$260,000
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?
(a) Did Roak Company successfully use financial leverage in the current year, as judged
by return on assets exceeding its interest rate on debt?
(b) Did Clay Company successfully use financial leverage in the current year, as judged
by return on assets exceeding its interest rate on debt?
< Required 2
2 Years Ago
2.9
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.
5.3%
6.5%
$200,000
Required 1 Required 2
Required 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?
Piepthing&>
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