Answer:
a-1 Cable Corporation 13.05
Multi-media Inc. 33.1%
a-2 Multi-Media Inc.
2. Cable Corporation Multi-Media Inc.
Net income/Sales 9.84% 5.19%
Net income/Total assets 7.76% 14.51%
Sales/Total assets .79 times 2.80 times
Debt/Total assets 40.55% 56.17%
Explanation:
a-1. Computation to determine the return on stockholders’ equity for both firms.
CABLE CORPORATION
Using this formula
Return on Stockholders’ Equity= Net Income / Stockholder’s equity
Let plug in the formula
Return on Stockholders’ Equity=$31,200 / 239,000
Return on Stockholders’ Equity= 0.1305*100
Return on Stockholders’ Equity=13.05%
MULTI-MEDIA INC.
Return on Stockholders’ Equity=$140,000 / 423,000
Return on Stockholders’ Equity= 33.1%
a-2. Based on the above calculation the firm that has the higher return is MULTI-MEDIA INC.
b. Computation for the following additional ratios for both firms.
Cable Corporation Multi-Media Inc.
Net income/Sales 9.84% 5.19%
($31,200/317,000=9.84%)
($140,000/2,700,000=5.19%)
Net income/Total assets 7.76% 14.51%
($31,200/402,000=7.76%)
($140,000/965,000=14.51%)
Sales/Total assets .79 times 2.80 times
(317,000/402,000=.79 times
(2,700,000/965,000=2.80 times)
Debt/Total assets 40.55% 56.17%
(163,000/402,000=40.55%)
( 542,000/965,000=56.17%)
