Question
You are given the information of firm A and B for their performance evaluation. Firm A B Sales 15 20 EAT 2 2 Total Assets
You are given the information of firm A and B for their performance evaluation. Firm A B Sales 15 20 EAT 2 2 Total Assets 25 40 Stockholder's Equity 10 10
Suppose the industry average of net profit margin ratio, total asset turnover and equity multiplier is around 10%, 0.58 times and 2.5 respectively.
Which of the following is true?
Neither firm needs to make any improvement.
Firm A shall restructure its capital structure to achieve a higher financial leverage since it appears to be lower than the industry average.
Firm A shall improve its total asset turnover ratio since it is higher than the industry average and thus indicates an inefficient utilization of assets.
Firm B shall improve its total asset turnover ratio since it is lower than the industry average and thus indicates an inefficient utilization of assets.
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