FIANACIAL ACCOUNTING
FIANACIAL ACCOUNTING
5th Edition
ISBN: 9781266704444
Author: SPICELAND
Publisher: MCG
Question
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Chapter 11, Problem 5PA

Requirement – 1

To determine

Calculate the return on assets for both companies.

Requirement – 1

Expert Solution
Check Mark

Answer to Problem 5PA

The return on assets of Company C and Company V is 14.93% and 7.06% respectively.

Explanation of Solution

Return on total Assets:

It is a measure to evaluate the efficiency of company’s assets. It reports the profit earned as the percentage of total assets used in the business. A company’s rate of return on total assets reflects its ability to optimize the use of total assets.

The formula to compute return on asset:

Return on Assets=Net IncomeAverage Total Assets

The return on assets for both companies is as follows:

Company C:

Return assets = $9,737 million$65,213 million(1)×100=0.1493×100=14.93%

Company V:

Return assets = $1,049 million$14,856 million (2)×100=0.0706×100=7.06%

Working note:

Calculate the average total assets of Company C.

Average total assets = (Beginning total assets+Ending total assets)2=$57,851 million+72,574 million2=$65,213 million (1)

Calculate the average total assets of Company V.

Average total assets = (Beginning total assets+Ending total assets)2=$14,928 million+14,783 million2=$14,856 million (2)

Requirement – 2

To determine

Calculate the cash return on assets for both companies

Requirement – 2

Expert Solution
Check Mark

Answer to Problem 5PA

The cash return on assets of Company C and Company V is 22.34% and 8.91% respectively.

Explanation of Solution

Cash return on assets:

It refers to the rate of cash generated from the investments in assets of company. It is relationship between the cash flows from operating activities and average total assets.

The formula to compute cash return on assets:

Cash return on assets = Cash flows from operating activitiesAverage total assets

The cash return on assets for both companies is as follows:

Company C:

Cash return on assets = $14,565 million$65,213 million(1)×100=0.2234×100=22.34%

Company V:

Cash return on assets = $1,324 million$14,856 million (2)×100=0.0891×100=8.91%

Requirement – 3

To determine

Calculate the cash flow to sales ratio and asset turnover ratio for both companies:

Requirement – 3

Expert Solution
Check Mark

Answer to Problem 5PA

The cash flow to sales ratio of Company C and Company V is 38.43% and 26.57% respectively, and assets turnover ratio of Company C and Company V is 0.58 and 0.34 respectively.

Explanation of Solution

Cash flows to sales:

It measures the cash generated from operating activities for each dollar of sales.

The formula to compute cash return on assets

Cash return on assets=Cash flows from operating activitiesNet sales

Assets Turnover:

It’s a measure to evaluate the efficiency of total assets used in the business to generate sales during a certain period. Assets turnover reflects the net sales as the times of average total assets.

The formula to compute asset turnover

Asset Turnover=Net salesAverage Total Assets

The cash flow to sales ratio and asset turnover ratio for both companies are as follows:

Cash flow to sales ratio:

Company C:

Cash flow to sales ratio=$14,565 million$37,905 million×100=0.3843×100=38.43%

Company V:

Cash flow to sales ratio=$1,324 million$4,984 million×100=0.26565=26.57%

Assets Turnover:

Company C:

Assets turnover = $37,905 million$65,213 million(1)=0.58

Company V:

Asset turnover= $4,984 million$14,856 million (2)×100=0.34

Requirement – 4

To determine

Discuss the company that has more favorable ratios.

Requirement – 4

Expert Solution
Check Mark

Explanation of Solution

  • The return on asset of Company C is higher than Company V, hence Company C has favorable ratio.
  • The cash return on asset of Company C is higher than Company V, hence the Company C has favorable ratio.
  • The cash flows to sales of Company C is higher than Company V, hence the Company C has favorable ratio.
  • The assets turnover ratio of Company C is higher than Company V, hence the Company C has favorable ratio.

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Chapter 11 Solutions

FIANACIAL ACCOUNTING

Ch. 11 - Prob. 11SSQCh. 11 - Prob. 12SSQCh. 11 - Prob. 13SSQCh. 11 - Prob. 14SSQCh. 11 - Prob. 15SSQCh. 11 - Applying Excel #11-1 A company reports net income...Ch. 11 - Prob. 2AECh. 11 - Prob. 1RQCh. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - 4. Why is it necessary to use an income statement,...Ch. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 10RQCh. 11 - Prob. 11RQCh. 11 - Prob. 12RQCh. 11 - Prob. 13RQCh. 11 - Prob. 14RQCh. 11 - Prob. 15RQCh. 11 - Prob. 16RQCh. 11 - Prob. 17RQCh. 11 - Prob. 18RQCh. 11 - Prob. 19RQCh. 11 - Prob. 20RQCh. 11 - BE11-1 Classify each of the following items as an...Ch. 11 - BE11-2 The following selected transactions occur...Ch. 11 - BE11-3 Place the following items in the correct...Ch. 11 - BE11-4 Laser World reports net income of $650,000....Ch. 11 - BE11-5 Macrosoft Company reports net income of...Ch. 11 - BE11-6 Hi-Tech, Inc., reports net income of $70...Ch. 11 - BE11-7 Engineering Wonders reports net income of...Ch. 11 - BE11-8 Creative Sound Systems sold investments,...Ch. 11 - Prob. 9BECh. 11 - BE11-10 Technologies Worldwide purchased land for...Ch. 11 - Prob. 11BECh. 11 - Prob. 12BECh. 11 - BE11-13 A-2-Z Design Services engaged in the...Ch. 11 - Prob. 14BECh. 11 - Prob. 15BECh. 11 - Prob. 16BECh. 11 - Prob. 17BECh. 11 - Prob. 18BECh. 11 - Prob. 19BECh. 11 - Prob. 20BECh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - E11-3 Analysis of an income statement, balance...Ch. 11 - E11-4 Wi-Fi, Inc., has the following selected...Ch. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Prob. 7ECh. 11 - Prob. 8ECh. 11 - E11-9 Software Distributors reports net income of...Ch. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Calculate operating activities—direct method...Ch. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 19ECh. 11 - Prob. 20ECh. 11 - Prob. 1PACh. 11 - Prob. 2PACh. 11 - Prob. 3PACh. 11 - Prob. 4PACh. 11 - Prob. 5PACh. 11 - Prob. 6PACh. 11 - Prob. 7PACh. 11 - Prob. 8PACh. 11 - Prob. 1PBCh. 11 - Prob. 2PBCh. 11 - Prob. 3PBCh. 11 - Prob. 4PBCh. 11 - Prob. 5PBCh. 11 - Prob. 6PBCh. 11 - Prob. 7PBCh. 11 - Prepare an income statement using operating cash...Ch. 11 - Great Adventures (This is a continuation of the...Ch. 11 - Prob. 2APCh. 11 - Prob. 3APCh. 11 - Prob. 4APCh. 11 - Prob. 5APCh. 11 - Prob. 7APCh. 11 - Prob. 8AP
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