Comparing profitability for three companies (LO 5-1) The following table shows four ratios derived from the...

Comparing profitability for three companies (LO 5-1)

The following table shows four ratios derived from the financial statements of three real companies, labeled A, B, and C in the table. (They are not listed in the table in any particular order.) The real companies are:

Brunswick Corporation, a leader in the leisure products industry that manufactures boats and marine engines, bowling and billiard products, as well as fitness equipment.

Consolidated Edison, an electricity and natural gas company whose nonutility operations include energy marketing and fiber-optic telecommunications.

Foot Locker, a shoe retailer with about 3,400 specialty stores in North America, Australia, and Europe. It also operates Champs Sports, an athletic wear retail chain, and a direct-to-customers business that sells through catalogs, mobile devices, and the Internet.

	A	B	C
Operating profit margin	0.171	0.086	0.113
Asset turnover ratio	0.304	1.269	2.025
ROA	0.034	0.070	0.120
ROCE	0.088	0.176	0.168

Required: Which company is which ? explain how you identified each company from the data in the Table.

Solutions

Expert Solution

1.Operating margin is a measure of profitability, it is the proportion of revenue left after meeting operating expenses.Higher operating margin means more profitable a compnays core business is.

Based on operating profit margin Company A is better,it has operating margin of .171 or 17.1%

2.Asset Turnover ratio means the efficiency with which a company is deploying its assets to generate revenue.Higher ratio indicates the company is generating more revenue per dollar of assets.

Based on above Company C is better, it has highest asset turnover ratio of 2.025 or 202.5%

3.Return on assets(ROA) indicates the returns/earnings generated from invested assets.

Based on above Company C is better it has highest ROA of .12 or 12%

4.ROCE indicated the returns generated by a company from capital employed. Higher ratio means more efficent use of capital.

Based on above Company B is better as it has the highest ratio of .176 or 17.6%

ekkarill92 answered 9 months ago

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