Question:
Assume the following data for Cable Corporation and Multi-Media, Inc.
|
Cable Corporation |
Multi-Media.inc. |
| Net income |
30,000 |
100,000 |
| Sales |
300,000 |
2,000,000 |
| Total assets |
400,000 |
900,000 |
| Total debt |
$150,000 |
450,000 |
| Stockholder's equity |
250,000 |
450,000 |
a. Compute return on stockholders’ equity for both firms using ratio 3a. Which firm has the higher return?
b. Compute the following additional ratios for both firms. 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.