Question

3. The sales, total assets, and net income for five companies of about the same size in the same industry are given in the following table. Item/Firm A B C D E Sales($000) 600 610 700 850 600 Assets($000) 200 400 300 500 280 Net Income 60 74 55 67 80 a) Determine the asset turnover, profit margin on sales, and return on assets for each of these five companies. b.Examine the ratio of those companies that seem to be out of line in relation to the average ratio for the five companies.

Answer 1

	A	B	C	D	E	Total
Sales	600	610	700	850	600	3,360
Assets	200	400	300	500	280	1,680
Net Income	60	74	55	67	80	336
Asset Turnover = Sales/Total Assets	3	1.525	2.33	1.7	2.14	2
Profit Margin on Sales = Net Income/Sales	10%	12.13%	7.86%	7.88%	13.33%	10%
Return on Assets = Net Income/Total Assets	30%	18.5%	18.33%	13.4%	28.57%	20%

b.Asset Turnover Ratio- Higher the better. Average is 2, companies A, C and E are performing above average

Profit Margin on Sales: Higher the better. Average is 10%, Companies A, B and E are performing above average

Return on Assets: Higher the better. Average is 20%. Companies A and E are performing above average

Companies A and E are well managed companies.