Using common size statements and ratios to make comparisons
At the end of 2011 the following information is available for Denver and Wheeling companies.
| Denver | Wheeling |
Sales | $2,000,000 | $2,000,000 |
Cost of goods sold | 1,600,000 | 1,350,000 |
Operating expenses | 320,000 | 540,000 |
Total assets | 3,000,000 | 3,000,000 |
Stockholders’ equity | 600,000 | 500,000 |
Required
a. Prepare a common size income statement for each company.
b. Compute the return on assets and return on equity for each company.
c. Which company is more profitable from the stockholders’ perspective?
d. One company is a high-end retailer, and the other operates a discount store. Which is the discounter? Support your selection by referring to the appropriate ratios.
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