Concept explainers
(1)
Cash return on assets, cash flow to sales and asset turnover of Company A
(1)
Explanation of Solution
Cash return on assets:
Cash return on assets if the ration that indicates the profit generated from the operating cash flows over the total assets of the company.
Cash flow to sales:
Cash flow to sales is the ration that indicates the net sales of the company in proportion to the average total assets of the company.
Asset turnover:
Asset turnover is the ration that indicates the net sales of the company in proportion to its average total assets.
Cash return on assets is 27.0% (2)
Cash flow to sales is 14.4% (3)
Asset turnover is 1.9 times (4)
Working note:
1. Calculate the Average total assets:
2. Calculate the cash return on assets:
3. Calculate the cash flow to sales:
4. Calculate the asset turnover:
Note: All dollars in amounts of thousands.
(2)
Cash return on assets, cash flow to sales and asset turnover of Company B
(2)
Explanation of Solution
Cash return on assets:
Cash return on assets if the ration that indicates the profit generated from the operating cash flows over the total assets of the company.
Cash flow to sales:
Cash flow to sales is the ration that indicates the net sales of the company in proportion to the average total assets of the company.
Asset turnover:
Asset turnover is the ration that indicates the net sales of the company in proportion to its average total assets.
Cash return on assets =43.8% (6)
Cash flow to sales =19.7% (7)
Asset turnover =2.2 times (8)
Working note:
1. Calculate the Average total assets:
2. Calculate the cash return on assets:
3. Calculate the cash flow to sales:
4. Calculate the asset turnover:
Note: All dollars in amounts of thousands.
(3)
To compare: Cash return on asset, Cash flow to sales and asset turnover of Company A and Company B
(3)
Explanation of Solution
Cash return on assets:
Cash return on assets if the ration that indicates the profit generated from the operating cash flows over the total assets of the company.
Cash flow to sales:
Cash flow to sales is the ration that indicates the net sales of the company in proportion to the average total assets of the company.
Asset turnover:
Asset turnover is the ration that indicates the net sales of the company in proportion to its average total assets.
Particulars | Company A | Company B |
Cash return on assets | 27.00% | 43.8% |
Cash flow to sales | 14.4% | 19.70% |
Asset turnover | 1.9times | 2.2times |
Table (1)
Company B has higher cash return on assets, Cash flow to sales and asset turnover comparing to the Company A.
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Chapter 11 Solutions
Financial Accounting
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