Question

Assume the following data for Cable Corporation and Multi-Media Inc.   
  

	Cable Corporation			Multi-Media Inc.
Net income	$	39,000		$	171,000
Sales		381,000			2,810,000
Total assets		412,000			912,000
Total debt		189,000			499,000
Stockholders' equity		223,000			413,000

a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.)
  

a-2. Which firm has the higher return?
  

• Multi-Media Inc.

• Cable Corporation

b. Compute the following additional ratios for both firms. (Input your Net income/Sales, Net income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.)
  

Answer 1

a-1. Return on stockholder's equity of Cable corporation is computed as follows:

= Net Income / Stockholder's Equity

= $ 39,000 / $ 223,000

= 17.49% Approximately

Return on stockholder's equity of Multi Media Inc is computed as follows:

= Net Income / Stockholder's Equity

= $ 171,000 / $ 413,000

= 41.40% Approximately

a-2. As can be seen, Multi Media has the higher return on stockholder's equity

b. Ratios of Cable corporation is computed as follows:

Net Income / Sales is computed as follows:

= $ 39,000 / $ 381,000

= 10.24% Approximately

Net income / Total Assets is computed as follows:

= $ 39,000 / $ 412,000

= 9.47% Approximately

Debt / Total Assets is computed as follows:

= $ 189,000 / $ 412,000

= 45.87% Approximately

Sales / Total Asset is computed as follows:

= $ 381,000 / $ 412,000

= 92.48% Approximately

Ratios of Multi Media is computed as follows:

Net Income / Sales is computed as follows:

= $ 171,000 / $ 2,810,000

= 6.09% Approximately

Net income / Total Assets is computed as follows:

= $ 171,000 / $ 912,000

= 18.75% Approximately

Debt / Total Assets is computed as follows:

= $ 499,000 / $ 912,000

= 54.71% Approximately

Sales / Total Asset is computed as follows:

= $ 2,810,000 / $ 912,000

= 308.11% Approximately