Comparative income statement data for Chen Inc. and Chuan Ltd., two competitors, are shown below for the

Question:

Comparative income statement data for Chen Inc. and Chuan Ltd., two competitors, are shown below for the year ended December 31, 2021.

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Instructions

a. Using vertical analysis, calculate the percentage of the base amount of the income statement for each company.

b. Calculate the gross profit margin, profit margin, asset turnover, return on assets, and return on equity ratios for 2021 for each company.

c. Using the information calculated in parts (a) and (b), compare the profitability of each company.

d. Is your comparison in part (c) an intracompany comparison or an intercompany comparison? Explain.

Taking It Further

How is your assessment of profitability affected by the differing sizes of the two companies, if at all? Explain.

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Related Book For  book-img-for-question

Accounting Principles Volume 2

ISBN: 978-1119502555

8th Canadian Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

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