Question

Concord Corporation and Cheyenne 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.

		Concord Corp.		Cheyenne Corp.
Net income		$ 255,720		$ 323,120
Sales revenue		2,131,000		2,308,000
Total assets (average)		5,327,500		4,616,000
Plant assets (average)		2,870,000		1,861,000
Intangible assets (goodwill)		367,100		0

(a)

For each company, calculate these values: (Round return on assets and profit margin to 1 decimal place, e.g. 6.2% and asset turnover to 2 decimal places, e.g. 17.54.)

				Concord Corp.			Cheyenne Corp.
(1)		Return on assets		enter the return on assets for Concord Corp in percentages rounded to 2 decimal places	%		enter the return on assets for Cheyenne Corp in percentages rounded to 2 decimal places	%
(2)		Profit margin		enter the profit margin for Concord Corp in percentages rounded to 2 decimal places	%		enter the profit margin for Cheyenne Corp in percentages rounded to 2 decimal places	%
(3)		Asset turnover		enter the asset turnover for Concord Corp rounded to 2 decimal places	times		enter the asset turnover for Cheyenne Corp rounded to 2 decimal places	times

Answer 1

Ans. A 1	Return on assets =   Net income / Average assets * 100
	Concord Corp.	$255,720 / $5,327,500 * 100	4.8%
	Cheyenne Corp.	$323,120 / $4,616,000 * 100	7.0%
Ans. A 2	Profit margin = Net income / Sales revenue * 100
	Concord Corp.	$255,720 / $2,131,000 * 100	12.0%
	Cheyenne Corp.	$323,120 / $2,308,000 * 100	14.0%
Ans. A 3	Total assets turnover = Sales / Average assets
	Concord Corp.	$2,131,000 / $5,327,500	0.40	times
	Cheyenne Corp.	$2,308,000 / $4,616,000	0.50	times