P10-9A Lebo Company and Ritter Corporation, two corporations of roughly the same size,
are both involved in the manufacture of in-line skates. Each company depreciates its plant assets
using the straight-line approach. An investigation of their financial statements reveals the following
information.
Lebo Co. Ritter Corp.
Net income $ 800,000 $1,000,000
Sales 1,200,000 1,080,000
Average total assets 2,500,000 2,000,000
Average plant assets 1,800,000 1,000,000
Instructions
(a) For each company, calculate the asset turnover ratio.
(b) Based on your calculations in part (a), comment on the relative effectiveness of
the two companies in using their assets to generate sales and produce net income.
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