Profitability Analysis for Two Companies

Questions Exercise 7-14 Question 3 ofS Check My Work 2. 3. eBook 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$): Company A Company B For Year Revenues. . Net Income Average During Year Total Assets Shareholders' Equity $3,750 476 $6,143 934 2,458 2,256 5,594 2,566 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 Return on AssetsProfit Margin xTotal Assets Turnover Company A Company B 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. 19.365 9% 12.693 1.5256 16.696 15.204 1.0981 Return on EquityProfit Margin x Total Assets Turnover Financial Leverage Ratio Company A Company B 36.399 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? 21.099 12.693 1.5256 1.0895 2.1800 15.204 1.0981 1. few fixed assets 2. more cash sales and fewer accounts receivable 3. higher financial leverage ratio reflecting more collateral for borrowing