Lu Ltd. and Zha`o Ltd., two corporations of roughly the same size, are both involved in the

Luó Ltd. and Zha`o Ltd., two corporations of roughly the same size, are both involved in the manufacture of in-line skates. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the following information.

______________________________Luó Ltd.Zh`ao Ltd.

Net income...........................HK$ 400,000.............HK$ 450,000

Sales revenue..............................1,240,000..................1,110,000

Average total assets......................2,000,000..................1,500,000

Average plant assets.....................1,500,000....................800,000

Instructions

(a) For each company, calculate the asset turnover.

(b) Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales and produce net income.