Question

Two competitors in the construction supply industry report the following selected financial data: Company A Company B Sales $ 46,970 $ 66,876 Net income 1,793 2,810 Operating cash flows 3,894 5,115 Total assets, beginning 33,705 40,627 Total assets, ending 32,475 41,214 1. Calculate the cash return on assets, cash flow to sales ratio, and asset turnover ratio for each company. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Answer 1

The cash return on assets for Company A is 10.86% and for Company B is 6.71%. The cash flow to sales ratio for Company A is 8.28% and for Company B is 7.65%. The asset turnover ratio for Company A is 2.77 times and for Company B is 3.22 times.

Step-by-step explanation:

To calculate the cash return on assets, we divide the net income by the average total assets [(beginning total assets + ending total assets) / 2]. For Company A, the cash return on assets is $1,793 / (($33,705 + $32,475) / 2) = 10.86%. For Company B, the cash return on assets is $2,810 / (($40,627 + $41,214) / 2) = 6.71%.

To calculate the cash flow to sales ratio, we divide the operating cash flows by the sales. For Company A, the cash flow to sales ratio is $3,894 / $46,970 = 8.28%. For Company B, the cash flow to sales ratio is $5,115 / $66,876 = 7.65%.

To calculate the asset turnover ratio, we divide the sales by the average total assets [(beginning total assets + ending total assets) / 2]. For Company A, the asset turnover ratio is $46,970 / (($33,705 + $32,475) / 2) = 2.77 times. For Company B, the asset turnover ratio is $66,876 / (($40,627 + $41,214) / 2) = 3.22 times.

Answer 2

The cash return on assets for both companies is 11.76% and 12.49%

The cash flow to sales ratio for both companies is 8.29% and 7.64%

The Assets Turnover Ratio for both companies is 70.44% and 61.18%

Step-by-step explanation:

In order to calculate the Cash Return on Assets(CROA) we need to calculate first the Average total assets for both companies as follows:

Average total assets = Opening assets + Closing assets / 2

For Company A = $33,705 + $32,475 / 2 = $33,090

For Company B = $40,627 + $41,214 / 2 = $40,920.5

Cash Return on Assets(CROA) = Operating Cash Flows / Average Total Assets

CROA for Company A =(3,894 / 33,090) * 100 = 11.76%

CROA for Company B =(5,115 / 40,920.5) * 100 = 12.49%

To calculate the Cash flow to sales ratio we would have to use the followng formula:

Cash flow to sales ratio = (Operating Cash flows / Net sales) * 100

Cash flow to sales ratio Company A = (3,894/46,970) * 100 = 8.29%

Cash flow to sales ratio Company B = (5,115/66,876) * 100 = 7.64%

To calculate the Assets Turnover Ratio we would have to use the following formula:

Assets Turnover Ratio = (Average Assets / Net sales) * 100

Assets Turnover Ratio Company A = (33,090/46,970) * 100 = 70.44%

Assets Turnover Ratio Company B = (40,920.5/66,876) * 100 = 61.18%