(LO4-7, 4-8, 5-1, 5-2) Saved The following information is available for the Memp
ID: 2337739 • Letter: #
Question
(LO4-7, 4-8, 5-1, 5-2) Saved The following information is available for the Memphis and Billings companies: Memphis Bi11ings Sales Cost of goods sold Operating expenses Total assets Stockholders' equity $1,500,000 $1,500,000 1,050,000 1,125,000 250,000 1,800,000 1,800,000 720,000 350,000 720,000 Required a. Prepare a common size Income statement for each company. b. Compute the return on assets and return on equity for each company. C.Which company is more profitable from the stockholders' perspective? d. One company is a high-end retailer, and the other operates-a discount store. Which is the discounter?Explanation / Answer
Req 1. Common Size Income Statement: Memphis % Billings % Sales revenue 1500000 100.00% 1500000 100.00% Less: Cost of goods sold 1050000 70.00% 1125000 75.00% Gross Margin 450000 30.00% 375000 25.00% Less: Operating expenses 350000 23.33% 250000 16.67% Net Income 100000 6.67% 125000 8.33% Req 2. Memphis Billings Return on assets 5.56% 6.94% (Net income /Total assets) Return on Equity 13.89% 17.36% (Net Income /Stockkholder's equity) Req 3. Company -Billings is more profitable from Stockholder's perspective. Req 4. Company - Memphis is discounter.
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