Danner Corporation and London Corporation, two companies of roughly the same size, are both involved in the manufacture of shoe-tracing devices. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the information shown below.

Danner Corp. London Corp.

Net income $ 240,000 $ 300,000 Sales revenue 1,150,000 1,200,000 Total assets (average) 3,200,000 3,000,000 Plant assets (average) 2,400,000 1,800,000 Intangible assets (goodwill) 300,000 0 Instructions

(a) For each company, calculate these values:

(1) Return on assets.

(2) Profit margin.

(3) Asset turnover.

(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?

AppendixLO1