Comparing Operating Characteristics Across Industries Following are selected income statement and balance sheet data for companies in different industries.

$ millions	Sales	Cost of Goods Sold	Gross Profit	Net Income	Assets	Liabilities	Stockholders' Equity
Target Corp.	$73,785	$51,997	$21,788	$3,363	$40,262	$27,305	$12,957
Nike, Inc.	32,376	17,405	14,971	3,760	21,396	9,138	12,258
Harley-Davidson	5,995	3,620	2,375	752	9,991	8,151	1,840
Cisco Systems	49,247	18,287	30,960	10,739	121,652	58,067	63,585

(a) Compute the following ratios for each company.

• Round all answers to one decimal place (percentage answer example: 0.2345 = 23.5%).
• Note: The liabilities to stockholders' equity ratio should not be converted into a percentage answer (round answers to one decimal place, for example: 0.452 = 0.5).

  Company	Gross Profit / Sales	Net Income/ Sales	Net Income/ Stockholders' Equity	Liabilities/ Stockholders' Equity
  Target Corp.	Answer	Answer	Answer	Answer
  Nike, Inc.	Answer	Answer	Answer	Answer
  Harley-Davidson	Answer	Answer	Answer	Answer
  Cisco Systems	Answer	Answer	Answer	Answer

  (b) Which of the following statements about business models best describes the differences in gross (and net) profit margin that we observe?

  The higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away.

  The lower gross profit companies are those that can manufacture their products at the lowest cost.

  The higher gross profit companies are those that sell the highest unit volumes.

  The lower gross profit companies are those that charge a higher price for their products.

  (c) Which company reports the highest ratio of net income to equity? AnswerCisco SystemHarley-DavidsonNike Inc.Target Corp.

  Which of the following statements best describes the differences in the ratio of net income to equity that we observe?

  The highest return to equity companies are those that are able to keep their operating costs the lowest.

  The highest return on equity companies are those that maintain high levels of debt and, as a result, reduce their utilization of equity.

  The highest return on equity companies are those that are able to sustain some competitive advantage that leads to higher profitability and are also able to minimize their use of equity.

  The lowest return on equity companies are those that are able to charge high prices for their products and, thus, report the highest gross profit-to-sales ratio.

• (d) Which company has financed itself with the highest percentage of liabilities to equity? AnswerCisco SystemHarley-DavidsonNike Inc.Target Corp.

  Which of the following statements best describes the reason why some companies are able to take on higher levels of debt than are others?

  Companies that can sustain higher levels of debt generally operate in consumer products industries.

  Companies that can sustain higher levels of debt are typically larger companies.

  Companies that can sustain higher levels of debt are typically those with the most stable and positive cash flows.

  Companies that can sustain higher levels of debt are generally younger companies whose market values are relatively low and, as a result, cannot raise equity capital.