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

Required

a. Prepare a common-size analysis of the 2020 statement of income data for First Ltd. and Supreme Ltd.

b. Calculate the return on assets and the return on shareholders’ equity for both companies.

c. Comment on the relative profitability of these companies.

d. Based on your calculations above, identify two main reasons for the difference in their profitability.

Supreme Ltd. First Ltd. 2020 2019 2020 2019 Net sales $337,500 $1,950,000 Cost of goods sold 202,500 1,092,000 Operating expenses 68,250 468,000 Interest expense 3,375 37,800 70,500 Income tax expense 17,400 $ 780,000 Current assets 165,000 $142,500 1,020,000 420,000 Capital assets (net) 367,500 1,530,000 1,425,000 42,750 Current liabilities 52,500 225,000 2,400,000 95,250 Long-term liabilities 67,500 630,000 540,000 Share capital 345,000 270,000 1,200,000 1,125,000 Retained earnings 120,000 102,000 495,000 300,000