Question 1: Common-size analysis and differences in profitability

Comparative financial statement data for First Ltd. and Supreme Ltd., two competitors, follow:

a.) Prepare a common-size analysis of the 2020 statement of income data for First Ltd. and Supreme Ltd and calculate the return on assets and the return on shareholders' equity for both companies.

b.) Comment on the relative profitability of these companies and based on your calculations above, identify two main reasons for the difference in their profitability.

Supreme Ltd First Ltd 2020 5337,500 202,500 2019 2020 51,950,000 1,092,000 2019 Net sales Cost of goods sold Operating expenses Interest expense Income tax expense Current assets Capital assets (net) Current liabilities Long-term liabilities Share capital Retained earnings 68,250 3,375 17,400 165,000 420,000 52,500 67,500 345,000 120,000 $142,500 367,500 42,750 95,250 270,000 102,000 468,000 37,800 70,500 1,020,000 1,530,000 225,000 630,000 1,200,000 495,000 $ 780,000 1,425,000 2,400,000 540,000 1,125,000 300,000