Chapter 6, Problem 36P

Performing ratio analysis using real-world data

Companies in the coal mining business use a lot of property, plant, and equipment. Not only is there the significant investment they must make in the equipment used to extract and process the coal, but they must also purchase the rights to the coal reserves themselves.

Goodyear Tire & Rubber Company, Inc. is the largest tire manufacturer in North America.

Chesapeake Energy Corporation claims to be the largest private-sector coal company in the world. The following information was taken from these companies’ December 31, 2015, annual reports. All dollar amounts are in millions.

Required

a. Calculate depreciation costs as a percentage of sales for each company. (Round to three decimal places.)

b. Calculate buildings, property, plant, and equipment as a percentage of total assets for each company. (Round to three decimal places.)

c. Based only on the percentages calculated in Requirements a and b, which company appears to be using its assets most efficiently? Explain your answer.

d. Identify some of the problems a financial analyst encounters when trying to compare the used of long-term assets of Chesapeake versus Goodyear.