Review the following problem and answer the questions that follow. You must show your working (how you arrived at your answer). No credit for solution that do not show how the produre or steps.

Interpreting results from the Du Pont system of analysis Assume the following data for Cable Corporation and Multi-Media Inc.

Cable Multi-

Corporation Media Inc.

Net income................................ $ 31,200 $ 140,000

Sales.......................................... 317,000 2,700,000

Total assets................................ 402,000 965,000

Total debt.................................. 163,000 542,000

Stockholders equity................. 239,000 423,000

a. Compute return on stockholders equity for both firms using profit margin ratio.(10 Points). Which firm has the higher return? (10 Points)

b. Compute the following additional ratios for both firms.

Profit Margin= Net income/Sales (10 Points)

Return on assets=Net income/Total assets (10 Points)

Total Asset Turnover= Sales/Total assets (10 Points)

Debt to Total Assets=Debt/Total assets (10 Points)

c. Discuss the factors from part b that added or detracted from one firm having a higher return on stockholders equity than the other firm as computed in part a. (10 Points)