Montreal Corporation and Quebec Corporation, two corporations of roughly the same size, are both involved in the
Question:
Montreal Corporation and Quebec Corporation, two corporations of roughly the same size, are both involved in the manufacture of umbrellas. Each company depreciates Comprehensive Problem 465 its plant assets using the straight-line approach. An investigation of their financial statements reveals the following information.
Montreal Corp. Quebec Corp.
Net income $ 800,000 $ 900,000 Sales 1,400,000 1,500,000 Total assets (average) 2,000,000 1,800,000 Plant assets (average) 1,400,000 1,200,000 Intangible assets (goodwill) 400,000 0 Instructions
(a) For each company, calculate these values:
(1) Return on assets ratio.
(2) Profit margin.
(3) Asset turnover ratio.
(b) Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales. What factors complicate your ability to compare the two companies?
Step by Step Answer:
Financial Accounting Tools For Business Decision Making
ISBN: 9780471730514
4th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso