Comment on the relative profitability of the companies

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Reference no: EM13613967

Here are comparative statement data for Night Company and DayCompany, two competitors. All balance sheet data are as of December 31, 2007,and December 31, 2006.

NightCompany Day Company

2007 2006 2007 2006

Net sales $350,000 $1,200,000

Cost of goods sold 180,000 624,000

Operating expenses 51,000 278,000

Interest expense 3,000 10,000

Income tax expense 17,000 54,000

Current assets 130,000 $100,000 700,000 $650,000

Plant assets (net) 400,000 270,000 1,000,000 750,000

Current liabilities 60,000 52,000 250,000 275,000

Long-term liabilities 50,000 68,000 200,000 150,000

Common stock 360,000 210,000 950,000 700,000

Retained earnings 60,000 40,000 300,000 275,000

Instructions

(a) Prepare a vertical analysis of the 2007 income statementdata for Night Company and Day Company.

(b) Comment on the relative p rofitability of the companies bycomputing the return on assets and the return on commonstockholders' equity ratios for both companies.

Reference no: EM13613967

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