Question

Assume the following data for Cable Corporation and Multi-Media Inc.

Cable
Corporation Multi-Media Inc.
Net income $ 39,800 $ 190,000
Sales 352,000 2,170,000
Total assets 409,000 966,000
Total debt 234,000 545,000
Stockholders' equity 175,000 421,000

a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.)



a-2. Which firm has the higher return?


Multi-Media Inc.

Cable Corporation



b. Compute the following additional ratios for both firms

Cable Corporation Multi-Media Inc.
Net income/Sales % %
Net income/Total assets % %
Sales/Total assets times times
Debt/Total assets % %

Answer 1

Cable Corporation Multi-Media Inc.

Net income 39,800 190,000

Sales 352,000 2,170,000

Total assets 409,000 966,000

Total debt 234,000 545,000

Stockholders' equity $175,000 $421,000

a1 Return on Equity = Net Income/Equity

Cable Corporation = 39,800 / 175,000 = 22.74%

Multi-Media Inc. = 190,000 / 421,000 = 45.13%

a2 Multi media has higher return on Equity

b. Net Income/Sales

Cable Corporation = 11.3068%

Multi-Media Inc. = 8.7558%

Net Income/Total Assets

Cable Corporation = 9.7311%

Multi-Media Inc. = 19.6687%

Sales/Total Assets

Cable Corporation = 0.860635697

Multi-Media Inc = 2.246376812

Debt/Total Assets

Cable Corporation = 57.2127%

Multi-Media Inc. = 56.4182