Question

Problem 7-7

Monty Corporation and Pronghorn Corporation, two companies of roughly the same size, are both involved in the manufacture of shoe-tracing devices. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the information shown below.

		Monty Corp.		Pronghorn Corp.
Net income		$ 194,700		$ 250,920
Sales revenue		973,500		1,045,500
Total assets (average)		3,300,000		2,609,568
Plant assets (average)		269,000		1,859,000
Intangible assets (goodwill)		389,100		0

(a)

For each company, calculate these values: (Round answers to 3 decimal places, e.g. 6.250% or 17.540.)

				Monty Corp.			Pronghorn Corp.
(1)		Return on assets			%			%
(2)		Profit margin			%			%
(3)		Asset turnover			times			times

Answer 1

	Monty Corp	Pronghorn Corp.
Return on Assets(Net Income / Average Total Assets)	5.900%	9.615%
For Monty($194,700 / $3,300,000)
For Pronghorn($250,920 / $2,609,568)
Profit on Margim(Net Income / Sales Revenue)	20.000%	24.000%
For Monty($194,700 / $973,500)
For Pronghorn($250,920 / $1,045,500)
Asset Turnover(Sales Revenue / Average Total Assets)	0.295	0.401
For Monty($973,500 / $3,300,000)
For Pronghorn($1,045,500 / $2,609,568)