Question

International Genetic Technologies (InGen) and The Resources Development Association (RDA) are companies involved in cutting-edge genetics research. Selected financial data for (InGen) and (RDA) are provided below: (Round your answers to 1 decimal place. Enter your answers in millions (i.e., $10,100,000 should be entered as 10.1).)

($ in millions)	InGen			RDA
Net sales	$	127,245		$	106,916
Net income		7,074			15,855
Operating cash flows		12,639			19,846
Total assets, beginning		124,503			113,452
Total assets, ending		129,517			116,433

Required:

1. Calculate the return on assets for both companies.

2. Calculate the cash return on assets for both companies.

3. Calculate the cash flow to sales ratio and the asset turnover ratio for both companies.

4. In general, which company has the more favorable ratios?

• International Genetic Technologies (InGen)

• Resources Development Association (RDA)

Answer 1

Part 1) return on assets=net income/average total assets

Where average total assets= assets at begining+assets at end/2

Thus, ROA(in gen)=(7074)/[(124503+129517)/2]

=7074/127010

=5.57%

ROA(RDA)=106916/[(113452+116433)/2]

=15855/114942.50

=13.79%

Part 2)

Cash return on assets=cash flow from operating activities/average total assets

CROA(in gen)=12639/127010

=9.95%

CROA(RDA)=19846/114942.50

=17.27%

Part 3) Cash flow to sales ratio=operating cash flow/net sales

For in gen: 12639/127245

=0.0993

For RDA: 19846/106916

=0.1856

Asset turnover ratio=net sales/average total assets

For in gen=127245/[(124503+129517)/2]

=127245/127010

=1.002

For RDA=106916/[(113452+116433)/2]

=106916/114942.50

=0.9302

Part 4)

Since m/s Resources Development Association has higher Return on assets and higher cash return on assets along with greater cash flow to sales ratio it can be suitably said that RDA has better ratios, ignoring marginal difference in assets turnover ratio.

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