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1. How will these laws affect ratios such as the Total Asset Turnover, and the Fixed Asset Turnover?

French labor laws focus on job protection. The 35-hour work week and other mandatory benefits increase employee costs, which in turn affect profitability and business ratios. The other unintended effect of these laws is that it reduces job creation, as high costs per employee discourages large work-forces (Cahuc, et.al, 2025). The collective bargaining agreements also pose a challenge as firms have to comply with these agreements regardless of their financial position (Marie, 2025). Ultimately, these laws impact ratios in various ways.

Total Asset Turnover Ratio and Fixed Asset Turnover Ratio.

This measures operational efficiency, as it tracks how the firm uses its assets to generate revenue.

Total Asset Turnover Ratio = Net Sales / Average Total Assets

Fixed Asset Turnover Ratio = Net Sales / Average Fixed Asset

Based on this formular, French labor laws impact Net Sales through;

• Limiting the work week to 35-hours. Effectively, this limits trading time. Customers have 35 hours to transact. Those who fail to do their shopping in that time-window might end up spending their money on other things, resulting in lost revenue.
• The high employee costs discourage hiring more employees. This may negatively impact customer experience if sales departments are short-staffed, putting product market at risk.
• Seasonal hiring. Labor protection laws can make it difficult to lay-off employees. This is a challenge for companies facing cyclical booms in business. They stand to miss opportunities during pick cycles since they will be short-staff. Hiring more staff during pick times will result in redundant work-force during slow periods. The costs of terminating the excess employees will impact profitability.
• The opportunity cost of cash spent on employee costs include assets. Companies that save on payroll costs can use that money to buy fixed and non-fixed assets. Those assets will be used to generate more revenue and thus increase profitability ratios.

Earning Per Share = Net Income / Outstanding Shares. High labor costs directly reduce net income through high payroll expenses.

Dupont Formular = Net Income/Equity = (Net Income/Sales) X (Sales/Assets) X (Assets/Equity).

As illustrated, staffing restrictions negatively impact sales. High payroll expenses limit affordability of assets. Reduced sales and high expenses also combine to reduce net income, which in turn reduces retained income. Retained income translates to equity. Therefore, these labor laws have a negative impact on the company's Dupont.

1. How will these laws influence the desire of manufacturing intensive companies to locate in Europe vs. China or the USA?

Generally, manufacturing companies are both labor and capital intensive. They need a lot of assets in the form of machinery. In turn, these machines need operators - human labor (Kenton, 2024). Strict labor laws and collective bargaining tend to make a country unfavorable for manufacturing intensive companies. When high capital demands combine with high payroll costs, it becomes difficult to operate profitably. Due to the high cost of heavy-duty machinery, companies cannot afford to have periods whereby the machines are sitting idle. It is common practice to let the machines run for 24-hours, leading to some employees working overtime. Thus, labor laws that limit weekly hours, like the 35-hour week in France, become counter-productive. Therefore, manufacturing intensive companies are disadvantaged by European labor markets which are characterized by labor laws which focus on employee rights, such as French labor laws. Such companies can realize more profits if they operate from countries like China and the US, which do not have such labor laws.

1. During the development of the personal computer industry Dell moved quickly to a just-in-time manufacturing model while competitors like Compaq did not. HP acquired Compaq in 2002. How would the just-in-time manufacturing model affect the Inventory Turnover ratio?

Just-in-time production is a strategy that avoids keeping excess inventory through producing only enough products to satisfy current orders. This reduces inventory storage costs (Investopedia Team, 2023). Further, keeping minimum inventory levels boosts efficiency, as it positively impacts ratios like Return on Total Assets and Inventory Turnover ratio - which measure the company's efficiency in selling its products. The ratios are calculated as follows;

Return on Total Assets = Net Income + Interest X (1 - tax rate) / Total assets

In the above formular, reducing inventory levels will in turn reduce Total Assets, thereby increasing the return on total assets.

Inventory Turnover Ratio = Cost of Goods Sold (COGS)/ Average Inventory

This ratio measures the number of times a firm sells its total average inventory. Keeping high inventory levels significantly reduces this number. JIT results in very low average inventory, thus increasing the inventory turnover ratio. Two companies with an identical COGS will show different operational efficiency based on average inventory. For example, two companies both have COGS as $50,000. Company A has average inventory of $80,000. Company B uses JIT and has a low average inventory of $5000. A will have an inventory turnover ratio of 0.625 while B will have an impressive ratio of 10.