You are considering investing in the retail sector and have identified two companies for further analysis. Financial information for the two companies is as follows:

Required

a. Calculate and compare the following ratios for the two companies:

i. Return on assets

ii. Gross margin

iii. Profit margin

iv. Inventory turnover

v. Days to sell inventory

b. Which company is likely following a low-cost producer strategy? Support your conclusion with reference to the ratios in part “a.” What strategy might the other company be following?

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Company A Company B (in thousands) Sales Cost of goods sold Net income Average inventory Average total assets $1,250,000 $1,400,000 687,500 100,000 215,800 833,333 980,000 63,000 150,600 525,555