P10-9B Gavin Corporation and Keady Corporation, two corporations of roughly the same
size, are both involved in the manufacture of canoes and sea kayaks. Each company depreciates
its plant assets using the straight-line approach. An investigation of their financial statements reveals
the following information.
Gavin Corp. Keady Corp.
Net income $ 400,000 $ 420,000
Sales 1,300,000 1,140,000
Average total assets 2,000,000 1,500,000
Average plant assets 1,500,000 800,000
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.
No comments:
Post a Comment