1.Below are selected ratios from 2 companies.(4 points)

Company ACompany B

Gross profit margin30.0%60.0%

Debt to Equity ratio20.0%30.0%

Inventory turn4.02.0

Return on equity5.0%12.0%

Choose company A or B for each question. Assume sales of the 2 companies are equivalent

a.Which company (A or B) is likely to have the highest inventory levels?

b.Which company is more likely to be competing on price (lower price)

c.Which company is more highly leveraged (Financial leverage)

d.Which company is giving the owners a higher return on their investment in the company?