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  • Companies in The Same Line of Business Usually Have Similar

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    Companies in the same line of business typically have comparable investments, capital structures, and potential rates of return. Return on assets is a key performance metric calculated as total asset turnover (sales/assets) multiplied by profit margin (income/sales). This indicates that profitability depends on how efficiently a company generates sales from its assets and controls costs relative to sales. Managing investments in property, plant, and equipment is important since it is usually the largest asset.

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    Companies in the same line of business typically have comparable investments, capital structures, and potential rates of return. Return on assets is a key performance metric calculated as total asset turnover (sales/assets) multiplied by profit margin (income/sales). This indicates that profitability depends on how efficiently a company generates sales from its assets and controls costs relative to sales. Managing investments in property, plant, and equipment is important since it is usually the largest asset.

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    9 views2 pages

    Companies in The Same Line of Business Usually Have Similar

    Uploaded by

    Taimur Technologist
    Companies in the same line of business typically have comparable investments, capital structures, and potential rates of return. Return on assets is a key performance metric calculated as total asset turnover (sales/assets) multiplied by profit margin (income/sales). This indicates that profitability depends on how efficiently a company generates sales from its assets and controls costs relative to sales. Managing investments in property, plant, and equipment is important since it is usually the largest asset.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Companies in the same line of business usually have

    similar #2131
    Companies in the same line of business usually have similar

    Companies in the same line of business usually have similar investments and capital structures,
    and an opportunity for similar rates of return. One of the key performance indicators that is used
    to assess the profitability of companies is the return on assets ratio. This ratio results from two
    key relationships-the profit margin and the total asset turnover- and in general terms can be
    written as follows:

    Return on assets = Total asset turnover (or Sales/ Total assets) × Profit margin (or
    Income/Sales)

    This says that profitability depends directly on how many sales dollars are generated for each
    dollar invested in assets (total asset turnover) and on how costs are controlled for each dollar of
    sales (profit margin). An increase in either ratio results in an increase in the return on assets. As
    property, plant, and equipment is often the largest single asset on the balance sheet,
    companies need to have strategies to manage their investment in such assets.

    Instructions

    Access the financial statements of two companies that are in the food distribution and retail
    business: Empire Company Limited for the year ended May 2, 2015, and Loblaw Companies
    Limited for the year ended January 3, 2015. These are available at www.sedar.com or each
    company's website. Review the financial statements and answer the following questions.

    (a) At each company's year end, determine the percentage of property, plant, and equipment to
    total assets.

    (b) Calculate each company's fixed asset turnover, total asset turnover, and profit margin (using
    net income) for the most recent year.

    (c) Determine the return on assets for each company. Which company is more profitable?

    (d) Which company appears to use its total assets more effectively in generating sales? Its fixed
    assets?

    (e) Are there any differences in accounting policies that might explain the differences in the
    fixed asset turnover ratios?

    (f) Examine the leasing note for each company. How might the amount of assets that are leased
    affect the above asset turnover ratios?

    1/2
    (g) Which company has better control over its expenses for each dollar of sales? How do you
    explain the asset turn- over ratios and the profit ratio comparisons?

    Companies in the same line of business usually have similar

    ANSWER
    http://paperinstant.com/downloads/companies-in-the-same-line-of-business-usually-have-
    similar/

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