Transcribed image text: Exercise 13-16 (Algo) Interpreting financial ratios LO A1, P3 Roak Company and Clay Company are similar firms that operate in the same industry, Clay began operations 2 years ago and Roak started 5 years ago. In the current year, both companies pay 8% interest on their debt to creditors. The following additional Information is available OK -2 Yrs Ago Total asset turnover Return on total assets Profit margin ratio Sales Current Yr 4.4 10.ax 3.7% $475,000 Roak Company 1 YA 4.1 12.2% 3.8% 3445,000 2 Yes Ago 2.4 12.0X 3.6 1461,000 Clay Company 1 YA 2.5 6.5% 5.6% $235, Current Y 2.0 6.9% 5.4% $275.000 5.5% $175,000 1. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets? 2. Which company has the better rate of growth in sales? 3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt, in the case of (a) Roak and (b) Clay? ces Complete this question by entering your answers in the tabs below. Required Required 2 Required (a) Which company has the better profit margin? (b) which has the better asset turnover (c) which has the better return on assets? a) Which company has the better profit margin? (b) Which has the better assotturnover? () Which has the better retum on assets? Rent Required 2 > Exercise 13-16 (Algo) Interpreting financial ratios LO A1, P3 Roak Company and Clay Company are similar firms that operate in the same industry. Clay began operations 2 years ago and Roak started 5 years ago. In the current year, both companies pay 8% interest on their debt to creditors. The following additional information is available Roal Company Clay Company Current Yr 1 YA 2 Yes Ago Current Ye Total asset turnover 1 YAO 2 Yes 4.4 4.1 2.0 2.8 Return on total assets 2.4 10.0% 12.2% 12.8 6.6% Profit margin ratio 0.3% 3.7% 3.8% 3.6% 5.6% 5.5% Sales $475,000 3445,000 $461,000 $275,000 5235.000 $175.000 HO 4. 6.9% 5.4% 1. (a) Which company has the better profit margin? (b) Which has the better asset turnover? ( Which has the better return on assets? 2. Which company has the better rate of growth in sales? 3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt in the case of (o) Roak and (0) Clay? nces Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Which company has the better rate of growth in sales? Which company has the better rate of growth in tales? Exercise 13-16 (Algo) Interpreting financial ratios LO A1, P3 Roak Company and Clay Company are similar firms that operate in the same industry Clay began operations 2 years ago and Roak started 5 years ago. In the current year, both companies pay 8% interest on their debt to creditors. The following additional information is available OK 2 yrs ago Total asset turnover Return on total assets Profit margin ratio Sales Current Y 4.4 10.0% 3.7% $475,000 Rook Company 1 Yr Ago 4.1 12.25 3.8% $445,000 12.8 3.6% $461,000 Current Ye 2.0 6.94 5.4% $275,000 Clay Company 1 YAO 2.3 6.6% 5.6% $235,000 2 Yes 2.4 6.3% 5.5% $175,000 1. (a) Which company has the better profit margin? (b) Which has the better asset turnover? (c) Which has the better return on assets? 2. Which company has the better rate of growth in sales? 3. Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt in the case of (a) Roak and (b) Clay? ces Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Did the company successfully use financial leverage in the current year, as judged by return on assets exceeding its interest rate on debt, in the case of (a) Roak and (b) Clay? b) Did Rock Company successfuly use financial foverage in the current your as judged by return on assets exceeding its interest rate on debt? Did Clay Company successfully to financial leverage in the current year, as judged by return on assots exceeding its interest rate on debt?