Auer Corporation and Mare Corporation, two corporations of roughly the same size
ID: 2563364 • Letter: A
Question
Auer Corporation and Mare Corporation, two corporations of roughly the same size, are both involved in the manufacture of canoes and sea kayaks. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the following information.
Auer Corp. Marte Corp.
Net Income 300,000 325,000
Sales Revenue 1,050,000 945,000
Average total assets 1,000,000 1,050,000
Average plant assets 750,000 770,000
a) For each company, calculate the asset turnover.
b) Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to gererate sales and produce net income.
Explanation / Answer
SOLUTION
(A) Asset turnover ratio = Net Sales / Average total assets
Auer Corp. = $1,050,000 / $1,000,000 = 1.05
Marte Corp. = $945,000 / $1,050,000 = 0.90
(B) Based on the asset turnover, Auer corp. is more effective in using assets to generate sales and produce net income.
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