Response to the following problem:
Interpreting results from the Du Pont system of analysis
Assume the following data for Cable Corporation and Multi-Media, Inc. Cable Mu1ti Corporation 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
Stockholders equity 250,000 450,000
a. Compute return on stockholders equity for both firms using ratio 3 a. 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.