Question

Multi-Media Inc. Net income Sales Total assets Total debt. Stockholders' equity Cable Corporation $ 31,200 317.000 402 000 153,000 239 000 $ 140,000 2,700.000 965 000 542.000 423,000 page 82 a. Compute the return on stockholders' equity for both firms using Ratio 3a. Which firm has the higher return? b. Compute the following additional ratios for both finns: Net income/Sales Net income/Total assets Sales/Total assets Debt/Total assets c. Discuss the factors from part b that added or detracted from one firm having a higher return on stockholders equity than the other firm, as computed in part a.

Answer 1

C) As per the above calculations, RoE is higher for Multimedia Inc compared to Cable corporation.

-Cable corporation Mulli-media Inc a) ROE ROE Net Income Shareholdet egesty 31, 200 239,000 140,000 423,000 ROE 0:1305 |0E = 0.33 096) (High) 140 000 31, 200 Net Income Sales 2700 000 312 000 . 101098427(high) 0.05185 140,000 Nelinume Total Assely = 31,2000 402000 965,000 0-077611 .10.14507 C High) 61) sales/reial Anebys : 2 700 000 317000 402000 96500 O - 0.78855 T2.7979) (high) bu! Debt / Total anely . 163,000 542,000 965,000 402,000 2 0.40547 10.56165 (High) more tor Cable Net Income to sales

But Net Income/Sales is higher for Cable corporation.

Net Income/Total Assets is higher for Multi Media inc.

Sales /Total Assets is higher for Multi Media inc.

Debt/Total Assets is higher for Multi Media inc.

As most of the ratios are higher for Multi Media, it in turn contributed to higher RoE for Multi Media Inc