Question

You are comparing the financial statements of General Motors (an automaker) and Sears (a department store). Provide four items that you should consider if you are attempting to compare the future growth prospects of both firms.

Answer 1

Even though both the firms are from different industries,we can compare the following items to compare the future growth of both firms:

i)Profit Margin:Since there is huge difference between profit margin under the both the industries.However a growing company may have lower profit margin.

ii)Capital Intensity:It is a measure of firm's efficiency in deployment of assets.

iii)Dividend Policy:A growing firm may do not distribute dividends and reinvest the profits as there is scope of growth.

iv)Capital structure Policy:Growing firm possess more debt as compared to equity in its capital structure.