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Rate of Return: Comparison of Different Companies
The following data show five items from the financial statements of three companies for a recent year (amounts in millions):
Company A
Company B
Company C
For the year
Revenues
$8824
$9000
$11742
Income before interest
And related taxes 1
615
1043
611
Net income to common
Shareholders 2
477
974
503
Average during the year
Total assets
9073
6833
7163
Common shareholders
Equity
2915
3494
2888
1Net income + Interest expense × (1 ? tax rate)
2Net income ? Preferred stock dividends
Required:
A. Compute the rate of return on assets for each company. Carry out all computations to four decimal places. Then, convert the final answer to a percent. For example: 825/1630 =.5062 is carried out to four decimal places and then entered as 50.62. Do not enter a percentage sign in your answer.
Return on Assets
Company A:
%
Company B:
Company C:
Separate the rate of return on assets into the return on sales and the asset turnover ratio. Carry out all computations to four decimal places. For return on sales, convert the final answer to a percent. For example: 825/1630 =.5062 is carried out to four decimal places and then entered as 50.62. For asset turnover, enter answer as a decimal carried out to two decimal places. For example: .51.
Return on Sales
Asset Turnover Ratio
times
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