Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations two years ago and Roak started five years ago. In the current year, both companies pay 6% interest on their debt to creditors. The following additional information is available.

1. Which company has the better

(a) Profit margin,

(b) Asset turnover,

(c) Return on assets?

2. Which company has the better rate of growth in sales?

3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt, in the case of

(a) Roak

(b) Clay?

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Total asset turnover ....... Return on total assets Profit margin ratio Sales..... Current Yr 3.1 7.4% 2.4% $410,000 Roak Company 1 Yr Ago 2.8 7.0% 2.5% $380,000 2 Yrs Ago 3.0 6.9% 2.3% $396,000 Current Yr 1.7 4.8% 2.8% $210,000 Clay Company 1 Yr Ago 1.5 4.5% 3.0% $170,000 2 Yrs Ago 1.1 3.2% 2.9% $110,000