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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
14.  Profitability analysis for two companies. The following data show four items from the finan- cial statements of two companies for a recent year (amounts in millions of US$):
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Company AÂ Â Â Â Â Â Â Â Â Â Â Company B
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|
For Year |
 |
|
|
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
$3,750 |
$6,143 |
|
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
476 |
934 |
|
Average During Year |
 |
 |
|
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
2,458 |
5,594 |
|
Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
2,256 |
2,566 |
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a.  Compute the rate of return on assets for each company. Disaggregate the rate of return on assets into profit margin and total assets turnover components.
b.  Compute the rate of return on equity for each  company.  Disaggregate  the  rate  of return on equity into profit margin, total assets turnover, and financial leverage ratio components.
c.   The two companies are a manufacturer of brand-name motorcycles and an operator of specialty retail coffee shops, primarily in rented facilities. Which of the companies cor- responds to A and B? What clues did you use in reaching your conclusions?
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