Using ratio analysis to make comparisons between companies
At the end of 2012, the following information is available for City Cinema and Feature Flicks.
| City Cinema | Feature Flicks |
Total assets | $219,000 | $981,000 |
Total liabilities | 136,000 | 523,000 |
Stockholders’ equity | 82,000 | 452,000 |
Net income | 18,000 | 65,000 |
Required
a. For each company, compute the debt to assets ratio and the return on equity ratio.
b. Determine what percentage of each company’s assets were financed by the owners.
c. Which company has the greatest level of financial risk?
d. Based on profitability alone, which company performed better?
e. Do the above ratios support the concept of financial leverage? Explain.
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