Corporate Financial Accounting
14th Edition
ISBN: 9781305653535
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 9, Problem 9.1ADM
Continuing Company Analysis—Amazon: Fixed asset turnover ratio
Amazon.com, Inc. is the world’s leading Internet retailer of merchandise and media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc. is the world’s leading Internet television network. Both companies compete in the digital media and streaming space. However, Netflix is more narrowly focused in the digital streaming business than is Amazon. Sales and average book value of fixed assets information (in millions) are provided for Amazon and Netflix for a recent year as follows:
Amazon | Netflix | |
Sales | $88,988 | $5,505 |
Average book value of fixed assets | 13,958 | 142 |
- A. Compute the fixed asset turnover ratio for each company. (Round to one decimal place.)
- B. Which company is more efficient in generating sales from fixed assets?
- C. Interpret your results.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Asset management ratios (Inventory turnover, days sales outstanding , fixed assets turnover, operating capital requirement, and total assets turnover)
Asset Management ratios
2002
2003
2004
Industry Average
Inventory Turnover
4.80
4.53
4.10
6.10
Days Sales Outstanding
37.4
39.5
45.5
32.00
Fixed Asset Turnover
9.95
6.21
8.41
7.00
Total Asset Turnover
2.34
2.02
2.00
2.50
How does Cartel Limited’s utilization of assets stack up against other firms in its industry?
Transfer Price with an Outside Market
Hrubec Products. Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow:
Hrubec Products has just acquired a small company that manufactures paper cartons. This company will be treated as a division of Hrubec with full profit responsibility. The newly formed Carton Division is currently purchasing 5,000 tons of pulp per year from a supplier at a cost of $70 per ton, less a 10% purchase discount. Hrubec’s president is anxious for the Carton Division to begin purchasing its pulp from the Pulp Division if an acceptable transfer price can be worked out.
Required:
For (1) and (2) below, assume the Pulp Division can sell all of its pulp to outside customers for $70 per ton.
1. What is the lowest acceptable transfer price from the perspective of the Pulp Division? What is the highest acceptable transfer price from the perspective of the Carton…
What is the comparison (analysis) of the Fixed Asset Turnover Ratio of Industry Average Ratio and the Company A Ratio? The Fixed Asset Turnover Ratio has decreased and increased. Why?
Industry Average Fixed Asset Turnover Ratio
2015: 3.00
2016: 3.18
2017: 3.58
2018: 2.23
2019: 2.94
Company A Fixed Asset Turnover Ratio
2015: 7.48
2016: 6.14
2017: 7.70
2018: 4.59
2019: 6.38
Chapter 9 Solutions
Corporate Financial Accounting
Ch. 9 - ONeil Office Supplies has a fleet of automobiles...Ch. 9 - Prob. 2DQCh. 9 - Prob. 3DQCh. 9 - Distinguish between the accounting for capital...Ch. 9 - Immediately after a used truck is acquired, a new...Ch. 9 - Keyser Company purchased a machine that has a...Ch. 9 - Is it necessary for a business to use the same...Ch. 9 - A. Under what conditions is the use of an...Ch. 9 - For some of the fixed assets of a business, the...Ch. 9 - Prob. 10DQ
Ch. 9 - Straight-line depreciation A building acquired at...Ch. 9 - Units-of-activity depreciation A truck acquired at...Ch. 9 - Double-declining-balance depreciation A building...Ch. 9 - Revision of depreciation Equipment with a cost of...Ch. 9 - Capital and revenue expenditures On February 14,...Ch. 9 - Sale of equipment Equipment was acquired at the...Ch. 9 - Prob. 9.7BECh. 9 - Prob. 9.8BECh. 9 - Costs of acquiring fixed assets Melinda Staffers...Ch. 9 - Prob. 9.2EXCh. 9 - Prob. 9.3EXCh. 9 - Prob. 9.4EXCh. 9 - Straight-line depreciation rates Convert each of...Ch. 9 - Straight-line depreciation A refrigerator used by...Ch. 9 - Depreciation by units-of-activity method A...Ch. 9 - Depreciation by units-of-activity method Prior to...Ch. 9 - Depreciation by two methods A Kubota tractor...Ch. 9 - Depreciation by two methods A storage tank...Ch. 9 - Partial-year depreciation Equipment acquired at a...Ch. 9 - Prob. 9.12EXCh. 9 - Capital and revenue expenditures Warner Freight...Ch. 9 - Prob. 9.14EXCh. 9 - Capital and revenue expenditures Quality Move...Ch. 9 - Capital expenditure and depreciation Willow Creek...Ch. 9 - Entries for sale of fixed asset Equipment acquired...Ch. 9 - Disposal of fixed asset Equipment acquired on...Ch. 9 - Prob. 9.19EXCh. 9 - Amortization entries Kleen Company acquired patent...Ch. 9 - Prob. 9.21EXCh. 9 - Balance sheet presentation List the errors you...Ch. 9 - Asset traded for similar asset A printing press...Ch. 9 - Prob. 9.24EXCh. 9 - Entries for trade of fixed asset On July 1, Twin...Ch. 9 - Entries for trade of fixed asset On October 1,...Ch. 9 - Prob. 9.1APRCh. 9 - Comparing three depreciation methods Dexter...Ch. 9 - Depreciation by three methods; partial years...Ch. 9 - Depreciation by two methods; sale of fixed asset...Ch. 9 - Prob. 9.5APRCh. 9 - Amortization and depletion entries Data related to...Ch. 9 - Allocating payments and receipts to fixed asset...Ch. 9 - Comparing three depreciation methods Waylander...Ch. 9 - Depreciation by three methods; partial years...Ch. 9 - Depreciation by two methods; sale of fixed asset...Ch. 9 - Transactions for fixed assets, including sale The...Ch. 9 - Amortization and depletion entries Data related to...Ch. 9 - Continuing Company AnalysisAmazon: Fixed asset...Ch. 9 - Prob. 9.2ADMCh. 9 - Prob. 9.3ADMCh. 9 - Comcast, Google, and Walmart: Fixed asset turnover...Ch. 9 - Prob. 9.1TIFCh. 9 - Communication Godwin Co. owns three delivery...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Continuing Company AnalysisAmazon: Fixed asset turnover ratio Amazon.com, Inc. is the worlds leading Internet retailer of merchandise and media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc. is the worlds leading Internet television network. Both companies compete in the digital media and streaming space. However, Netflix is more narrowly focused in the digital streaming business than is Amazon. Sales and average book value of fixed assets information (in millions) are provided for Amazon and Netflix for a recent year as follows: Amazon Netflix Sales 88,988 5,505 Average book value of fixed assets 13,958 142 A. Compute the fixed asset turnover ratio for each company. (Round to one decimal place.) B. Which company is more efficient in generating sales from fixed assets? C. Interpret your results.arrow_forwardCompare Amazon.com to Netflix Amazon.com, Inc. (AMZN) is the worlds leading Internet retailer of merchandise and media. Amazon also designs and sells electronic products, such as e-readers. Netflix, Inc. (NFLX) is one of the worlds leading Internet television networks. Both companies compete in the digital media and streaming space. However, Netflix is more narrowly focused in the digital streaming business than is Amazon. Sales and average book value of fixed assets information (in millions) are provided for Amazon and Netflix for a recent year as follows: a. Compute the fixed asset turnover ratio for each company. Round to one decimal place. b. Which company is more efficient in generating sales from fixed assets? c. Interpret your results.arrow_forwardContinuing Company Analysis-Amazon: Asset turnover ratio Amazon.com, Inc. is one of the largest Internet retailers in the world. Netflix, Inc. provides digital streaming and DVD rentals in the United States. Amazon and Netflix compete in streaming and digital services, however Amazon also sells many other products through the Internet. The sales and total assets (in millions) from recent financial statements were reported as follows for both companies: Amazon Netflix Total revenues (sales) 88,988 5,505 Total assets: Beginning of year 40,159 5,413 End of year 54,505 7,057 A. Based on your knowledge of each company, identify three major assets used by each company in generating revenue. B. Compute the asset turnover ratio for each company. (Round to two decimal places). C. Which company generates sales from total assets more efficiently?arrow_forward
- FedEx Corporation and United Parcel Service, Inc. compete in the package delivery business. The major fixed assets for each business include aircraft, sorting and handling facilities, delivery vehicles, and information technology. The sales and average book value of fixed assets reported on recent financial statements for each company were as follows: a. Compute the fixed asset turnover ratio for each company. Round to one decimal place. b. Which company appears more efficient in using fixed assets? c. Interpret the meaning of the ratio for the more efficient company.arrow_forwardAnalyze Home Depot The Home Depot (HD) reported the following data (in millions) in its recent financial statements: a. Determine the asset turnover ratio for Home Depot for Year 2 and Year 1. Round to two decimal places. b. What conclusions can be drawn from these ratios concerning the change in the ability of Home Depot to effectively use its assets to generate sales?arrow_forwardProfit margin (%) Total asset turnover Equity multiplier ROE Company A 2018 33.2 0.345 1.20 2019 29.5 0.406 1.26 2020 36.9 0.330 1.13 Company B 2018 36.9 0.463 1.30 2019 33.5 0.360 1.23 2020 26.2 0.436 1.36 Calculate ROE for both companies and interpret your answer. Which company will you prefer for investment in 2018, 2019 and 2020? Explain. Interpret the values in profit margin, total asset turnover and equity multiplier. Will your investment decision for 2018, 2019 and 2020 change once you use DuPont identity instead of ROE? Explain. Note- answer both the parts of the questionarrow_forward
- Company X is competing with company Y. These are their ratios: x y Total Asset Trunover .462 .361 Inventory Turnover 30.23 37.40 Accounts Receivable n/a n/a Based on Asset Utilization/Management Efficiency, which company is doing better when compared to the other?arrow_forwardPotential Acquisition Your company is considering acquiring a private company (New Co., Inc.). The CFO has asked you to review the financial statements, look for key trends, and develop financial/operational questions to ask the management of New Co. when you meet next week. Calculate average collection period, total asset turnover, inventory turnover, and days in inventory. New Co., Inc. Income Statement 12/31/22 12/31/21 12/31/20 12/31/19 Revenue Total Revenue 37,651,000 40,403,000 39,528,000 40,339,000 Cost of Revenue 29,175,000 30,963,000 30,334,000 31,292,000 Gross Profit 8,476,000 9,444,000 9,194,000 9,047,000 Operating Expenses Selling General and Administrative 7,911,000 7,493,000 7,612,000 7,550,000 Operating Income or Loss 565,000 1,947,000 1,582,000 1,497,000 Income from Continuing Operations Interest Expense 75,000 72,000 80,000 90,000 Income Before Tax 490,000 1,875,000 1,502,000 1,407,000…arrow_forwardOffice Depot, Inc. is one of the largest suppliers of office products in the United States. Suppose it had net income of $738.7 million and sales of $50,000 million in 2020 Its total assets were $13,073.1 million at the beginning of the year and $13,717.3 million at the end of the year. What is Office Depot, Inc.’s (a) asset turnover and (b) profit margin? (Round to two decimals.) Provide a brief interpretation of your results.arrow_forward
- Return on investment Commodore Entertainment has four profitable business segments, described as follows: • Media Networks: Television and radio• Parks and Resorts: Resorts, including Commodore land• Studio Entertainment: Motion pictures, musical recordings, and stage plays• Consumer Products: Character merchandising, Commodore stores, books, and magazines Commodore Entertainment recently reported sector income from operations, revenue, and invested assets as follows: Income from Operations Revenue Invested Assets Media Networks $163,582 $735,200 $919,000 Parks and Resorts 73,625 353,400 589,000 Studio Entertainment 16,668 324,100 463,000 Consumer Products 80,164 352,800 196,000 a. Use the DuPont formula to determine the return on investment for the four Commodore Entertainment sectors. Round Profit Margin and ROI to one decimal place and Investment Turnover to two decimal places. Profit Margin Investment Turnover ROI…arrow_forwardCOMPUTING RESIDUAL INCOME.Suppose the following hypothetical data represent total assets, book value, and market value of common shareholders’ equity (dollar amounts in millions) for three firms. Each of these firms, Southwest Airlines, Kroger, and Yum! Brands, operates in a different industry, but all of them operate in very competitive industries. Southwest Airlines is a U.S. domestic airline that provides low-cost point-to-point air transportation services. Kroger operates retail supermarkets across the United States. Yum! Brands operates and franchises quick-service restaurants, including KFC, Pizza Hut, Taco Bell, Long John Silver’s, and A&W All American Food restaurants. These data also include hypothetical market betas for the three firms and analysts’ consensus forecasts of net income for Year +1. For each firm, analysts expect other comprehensive income items for Year +1 to be zero, so Year +1 net income and comprehensive income will be identical. Assume that the risk-free…arrow_forwardBenchmark analysis: Trademark Corp.'s financial manager collected the following information for its peer group to compare its performance against that of its peers. Ratios Trademark Peer Group DSO 33.5 days 27.9 days Total assets turnover 2.3 3.7 Inventory turnover 1.8 2.8 Quick ratio 0.6 1.3 (a) Explain how Trademark is performing relative to its peers. (b) How do the industry ratios help Trademark's management?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Financial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial & Managerial Accounting
Accounting
ISBN:9781337119207
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Corporate Financial Accounting
Accounting
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial ratio analysis; Author: The Finance Storyteller;https://www.youtube.com/watch?v=MTq7HuvoGck;License: Standard Youtube License