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### Foundations Of Financial Management

Book edition 16th
Author(s) Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Pages 768 pages
ISBN 9781259277160

# Assume the following data for Cable Corporation and Multi-Media Inc. Capable corporationMuli-media incNet income$31,200$140,000Sales317,0002,700,000Total assets402,000965,000Total debts163,000542,000Stockholder’s equity239,000423,000c. Discuss the factors from part b that added or detracted from one firmhaving a higher return on stockholders’ equity than the other firm ascomputed in part a.

The return on stockholder’s equity of Multimedia Incorporation is more than that of Cable corporation because the return on the sales of Capable corporation has a higher return than Multimedia Incorporation (9.84% vs. 5.19%).

However, Multimedia Incorporation has a higher return than Capable corporation on total assets (14.51% versus 7.76%) because the total asset turnover of Multimedia Incorporation is more than that of the Cable Corporation (279.79% versus 78.86%). This factor alone leads to a higher return on total assets.

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## Comparison of return on stockholder’s equity from part a

 Capable corporation Multimedia Incorporation Return on stockholder’s Equity 13.05% 33.10%

Return on stockholder’s equity of multimedia Incorporation is more than that of Capable corporation because the net income of multimedia incorporation is more than that of Capable corporation.

## Comparison of other variables from part b

 Capable corporation Multimedia Incorporation Net income to sales 9.84% 5.19% Net Income to total assets 7.76% 14.51% Sales to total assets 78.86% 279.79%

Net income to sales of Multimedia incorporation is less than that of Capable corporation due to the increase in the sale of Multimedia incorporation.

Net income to total assets of multimedia incorporation is more than that of Capable corporation because the total assets of Multimedia incorporation are more than that of Capable corporation.

In addition, sales to total assets of Multimedia incorporation are more than that of Capable corporation because the net sales of Multimedia incorporation are more than that of Capable corporation.