Comparative income statement data for Manitou Ltd. and Muskoka Ltd., two competitors, are shown below for the year ended June 30, 2021.

Instructions

a. Using vertical analysis, calculate the percentage of the base amount of the income statement for each company.

b. Calculate the gross profit margin, profit margin, asset turnover, return on assets, and return on equity ratios for 2021 for each company.

c. Using the information calculated in parts (a) and (b), compare the profitability of each company.

d. Is your comparison in part (c) an intracompany comparison or an intercompany comparison? Explain.

Taking It Further

How is your assessment of profitability aff ected by the differing sizes of the two companies, if at all? Explain.

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Muskoka Manitou Net sales $360,000 $1,400,000 Cost of goods sold 200,000 720,000 Gross profit Operating expenses 160,000 680,000 60,000 272,000 Profit from operations Rental income 100,000 408,000 12,000 24,000 Profit before income tax 112,000 432,000 22,400 $ 89,600 Income tax expense 95,040 $ 336,960 Profit Additional information: Average total assets Average total shareholders' equity $457,500 $1,725,000 204,800 743,480