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P9-12A Delicious Limited competes in the fast food industry with Scrumptious Limited. Delicious embarked on a major expansion in 2018, borrowing a large amount of
P9-12A Delicious Limited competes in the fast food industry with Scrumptious Limited. Delicious embarked on a major expansion in 2018, borrowing a large amount of money and acquiring a small competitor. The acquisition doubled the number of restaurants that Delicious has. Scrumptious, on the other hand, took a more conservative approach and did not buy any new assets, focusing instead on a strategy of making existing operations more efficient. Data for the two companies are provided below (in thousands of dollars): 2017 2018 2016 Delicious Total assets $2,000 $1,100 $i,000 Net sales 3,100 1,500 1,600 Net income 350 150 140 Scrumptious Total assets 800 900 1,000 1,700 Net sales 2,000 1,900 Net income 180 200 210 Instructions (a) Calculate the (1) profit margin, (2) asset turnover, and (3) return on assets ratios for each company in 2017 and 2018 (b) Provide an explanation for the year-over-year changes in the ratios calculated in part (a)
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