Problem - Abacus Limited and Zandi Corporation are competing businesses. Abacus owns all of its operating assets, financed largely by secured loans. Zandi rents its operating assets from a major industrial leasing company. The 2016 SCIs and SFPs for the two companies are shown below:
Required:
1) Using the chart on the following page, compute the following ratios for both companies (for convenience, use 2016 year-end balance sheet amounts instead of averages). Assume tax rate of 30%. Also, indicate whether each ratio is a profitability, liquidity, efficiency or solvency ratio. (Formulas on last page of exam.)
a. Operating margin
b. Asset turnover
c. Return on share equity
d. Total debt to shareholder's equity
2) Evaluate the two companies, based on the ratios you have calculated. Which company do you think is more profitable? Why?