P2-41. Comparing Operating Characteristics across Industries (LO1) Following are
ID: 2650424 • Letter: P
Question
P2-41. Comparing Operating Characteristics across Industries (LO1)
Following are selected income statement and balance sheet data for companies in different industries.
Required
a. Compute the following rations for each company.
-Gross profit/Sales
-Net income/Sales
-Net income/Stockholders' equity
-Liabilities/Stockholders' equity
b. Comment on any differences among the companies' gross profit to sales ratios and net income as a percentage of sales. Do differences in the companies' business models explain the differences observed?
c. Which company reports the highest ratio of net income to equity? Suggest one or more reasons for this result.
d. Which company has financed itself with the highest percentage of liabilities to equity? Suggest one or more reasons why this company can take on such debt levels.
Please answer all parts of the question
Cost of Stockholders' (S millions) Sales Goods Sold Gross Profit Net IncomeAssets $millions) Target Corp. (TGT) 73,301 50,568 22,733 2,999 48,163 31,605 16,558 Nike, Inc. (NKE) 25,313$ 14,279 11,034 2,485 17,5846,42811,156 Harley-Davidson (HOG) $ 5,581 $ 3,2222,359 6249,171 $ 6,613 $ 2,558 Cisco Systems (CSCO)$ 48,607 19,167 29,4409,983 101,191 42,063 59,128 Sales Goods Sold Gross Profit Net Income Assets abilities Equity $ 25,313 $ 14,279 $ 11,034$ 2,485 $17,584 $ 6,428 $11,156Explanation / Answer
Answer: a calculation of the ratio:
-Gross profit/Sales:
-Net income/Sales:
-Net income/Stockholders' equity:
-Liabilities/Stockholders' equity:
Answer:b CSCO company has a highest GP ratio as well as Net income /sales ratio and TGT company has a lowest GP and net income ratio in comparison with others.
Answer:c HOG company reports the highest ratio of net income to equity. it measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.
Answer:d HOG company has financed itself with the highest percentage of liabilities to equity.
Particulars Sales ($ millions) (A) COGS (B) Gross profit (C ) GP Ratio [(C/A)*100] TGT 73301 50568 22733 31.01321946 NKE 25313 14279 11034 43.59025007 HOG 5581 3222 2359 42.26841068 CSCO 48607 19167 29440 60.56740799Related Questions
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