Q1. Use the information below for J.C. Penney and Intel to answer the following questions.
a. Calculate the values for (A) and (X). Revenue for INTC is more than (__________ / 10 times) greater than revenue for JCP, whereas net income for INTC is approximately (2 times / 10 times / __________) greater than net income for JCP.
b. Examine the relationship between Sales Revenue and Net Income.
1. (JCP / __________) corporation is generating the most net income from each dollar of revenue.
2. This relationship is measured by the (__________/ Asset Turnover / ROA) ratio.
3. Calculate ROS and record in the space provided above.
4. ROS of (JCP / __________) is clearly much higher, revealing that (JCP / __________) has a greater ability to translate revenue into profits; keep expenses under control. But does the higher ROS mean that one company is better than the other company? (Yes / __________), because these companies are from different industries, and ROS averages (are the same / __________) among industries.
Q2. Let’s examine three companies within the Personal Computer Systems industry. Use the chart below to answer the following questions. Stock symbols are shown in parentheses.
a. For AAPL, profits were __________cents of each revenue dollar, while __________cents of each revenue dollar were used to pay for the costs of running the business.
b. One measure of sales volume is the (ROS / __________/ ROA) ratio.
c. Companies invest in assets to generate additional revenue, to increase net income. AAPL earned __________cent(s) in profit from each dollar invested in assets. Is a company with a greater ROA ratio using assets more efficiently to generate profits than a company with a lower ROA ratio? (__________ / No / Can’t tell), because ROA (___ / is not) comparable among industries.
d. It was shown in Activity 8 that Wal-Mart makes profits by generating a large volume of sales on items with low profitability. ROS for Wal-Mart is relatively (__________/ high), whereas Asset Turnover is relatively (low / __________/ can’t tell). ROS x Asset T/O = (__________/ GP% / debt ratio), which is considered the (least / __________) comprehensive measure of profitability.
e. During 2010, it cost AAPL __________cents of each revenue dollar to produce Mac computers, iPods, iPhones, iPads, iTunes, and other related products and services leaving __________cents of each revenue dollar to cover all remaining operating expenses, non operating expenses, and profits. The Gross Profit Margin (GP %) is the (__________/ second / last) indication of profitability shown on the income statement. The information for both the numerator and denominator of the GP% ratio come from the (balance sheet / __________/ statement of cash flows).
f. For profitability ratios a (__________/ low) ratio indicates greater profitability and an increasing trend is considered (__________/ unfavorable).
On the previous page, for each ratio, circle the strongest among the three companies in the Personal Computer Systems industry.
g. Review the ratios that were circled as the strongest and those ratios that were crossed out for being lower than the industry average to answer the following questions.
1. Which company has the greatest markup on products sold? (__________/ DELL / HPQ)
Which ratio reveals this information? (__________/ Asset TO / ROA / GP%)
2. Which company appears to sell at a low markup to generate a greater volume of sales? (AAPL / __________/ HPQ)
Which two ratios reveal this information? (__________/ ____________________/ ROA / GP%)
3. According to the most comprehensive measure of profitability, which company is the most profitable? (__________/ DELL / HPQ)
Which ratio reveals this information? (ROS / Asset TO / __________/ GP%)
4. Which company has the lowest product costs compared to sales revenue? (__________ / DELL / HPQ)
Which ratio reveals this information? (ROS / Asset TO / ROA / __________%)
5. Which company has the strongest profitability? (__________/ DELL / HPQ) Why?
6. Which company has the weakest profitability? (AAPL / DELL / __________) Why?