Chapter 13, Problem 16E

1.

Summary Introduction

Concept Introduction:

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. The formulas to calculate the Profit margin is as follows:

  $\text{Profit Margin = }\frac{\text{Net Income}}{\text{Sales}}$

Return on assets/ investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

$\text{ROI= Operating income }÷\text{Average total assets}$

To Calculate: the profit margin and return on total assets of the company for both the companies.

2.

Summary Introduction

Concept Introduction:

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. The formulas to calculate the Profit margin is as follows:

  $\text{Profit Margin = }\frac{\text{Net Income}}{\text{Sales}}$

Return on assets/ investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

$\text{ROI= Operating income }÷\text{Average total assets}$

To identify: the company preferable for the investment.