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

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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Chen Chuan Net sales $1,849,035 $539,038 Cost of goods sold 1,060,490 338,006 Gross profit Operating expenses Profit from operations Interest expense 788,545 201,032 502,275 89,000 286,270 112,032 1,252 6,800 Profit before income tax 279,470 110,780 27,695 Income tax expense 83,841 $ 195,629 $ 83,085 Profit Additional information: $ 894,750 Average total assets Average total shareholders' equity $251,313 724,430 186,238