Question
Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations two years ago and Roak started five years
Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations two years ago and Roak started five years ago. In the current year, both companies pay 6% interest on their debt to creditors. The following additional information is available.
| Current Yr | 1 Yr Ago | 2 Yrs Ago | Current Yr | 1 Yr Ago | 2 Yrs Ago | |
| Total asset turnover | 3.1 | 2.8 | 3.0 | 1.7 | 1.5 | 1.1 |
| Return on total assets | 7.4% | 7.0% | 6.9% | 4.8% | 4.5% | 3.2% |
| Profit margin ratio | 2.4% | 2.5% | 2.3% | 2.8% | 3.0% | 2.9% |
| Sales | $410,000 | $380,000 | $396,000 | $210,000 | $170,000 | $110,000 |
What is your analysis should include their ability to use assets efficiently to produce profits? Comment on their success in employing financial leverage in the current year.
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Fundamental accounting principle
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta
21st edition
1259119831, 9781259311703, 978-1259119835, 1259311708, 978-0078025587
