Profitability analysis for two companies The following data show fie items from the financial statements of two companies for a recent war (amounts in millions):

aNet Income + [Interest Expense x (1 ' Tax Rate)]
bNet Income – Preferred Stock Dividends
a. Compute the rate of return on assets for each company. Disaggregate the rate of return on assets into profit margin for ROA and total assets turnover components.
b. Compute the rate of return on common shareholders' equity for each company. Disaggregate the rate of return on common shareholders' equity into profit margin for ROCE, total assets turnover, and capital structure leverage ratio components.
c. The two companies are Harley Davidson manufacturer of brand-name motorcycles) and Starbucks (operator of specialty retail coffee shops, primarily in rented facilities). Which of the companies corresponds to A and B? What clues did vu use in reaching yourconclusions?

Transcribed Image Text:

Company A Company B For Year Revenues.. Income Before Interest and Related Taxes Net Income to Common Shareholders. $3,750 476 476 $6,143 934 934 Company A Company B Average during Year Total Assets.. Common Shareholders' Equity.. 5,594 2,566 2,458 2,256