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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
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Phoniex University
Oct-2001 - Nov-2016
Exercise 7-14
Profitability Analysis for Two Companies
The following data show four items from the financial statements of two companies for a recent year (amounts in millions of US$):
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. Round your answers to one decimal place.
| Â | Return on Assets | = | Profit Margin | x | Total Assets Turnover |
| Company A | % | = | % | x | Â |
| Company B | % | = | % | x | Â |
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. Round your answers to one decimal place.
| Â | Return on Equity | = | Profit Margin | x | Total Assets Turnover | x | Financial Leverage Ratio |
| Company A | % | = | % | x | Â | x | Â |
| Company B | % | = | % | x | Â | x | Â |
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 following clues would be more characteristic of a manufacturer of brand-name motorcycles than an operator of specialty retail coffee shops?
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