Le Chateau Inc. and Reitmans (Canada) Limited are two competitors in the retail clothing industry. They reported
Question:
Le Château Inc. and Reitmans (Canada) Limited are two competitors in the retail clothing industry. They reported the following information at January 29, 2011 (in millions of dollars):
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Industry averages are as follows: profit margin, 3.2%; return on assets, 3.5%; and asset turnover, 1.1 times.
Instructions
(a) For each company, calculate the profit margin, return on assets, and asset turnover ratios for 2010.
(b) Based on your calculations in part (a), comment on how effectively each company is using its assets to generate sales and produce profit.
(c) What, if anything, complicates your ability to compare the two companies in (b)?
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.
Step by Step Answer:
a b Based on profit margin we can see that Reitmans is more profitable than Le Chteau Both companies have profit margins that are higher than the aver...View the full answer
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118024492
5th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
