Response to the following problem:
Evaluating profitability and asset management; obtain and compare annual reports from companies in the same industry
Performance and profitability of a company often are evaluated using the financial information provided by a firm's annual report in comparison with other firms in the same industry. Ratios are useful in this assessment.
Required:
Obtain annual reports from two corporations in the same primary industry. Using techniques you learned in this chapter and any analysis you consider useful, respond to the following questions:
1. How do earnings trends compare in terms of both the direction and stability of income?
2. Which of the two firms had greater earnings relative to resources available?
3. How efficiently are current assets managed?
4. Has each of the companies achieved its respective rate of return on assets with similar combinations of profit margin and turnover?
5. Are there differences in accounting methods that should be taken into account when making comparisons?