Company A has net income of $55,000 and sales of $600,000 during the year. Their

Question

Company A has net income of $55,000 and sales of $600,000 during the year. Their average total assets were $340,000. Company B has net income of $100,000 and sales of $1,200,000 during the year. Their average total assets were $800,000. Which of the following is true regarding the profitability of these two companies? OA. Company A is more profitable based on the return on asset ratio, but not the profit margin. OB. Company A is more profitable based on both the return on asset ratio and profit margin. OC. Company B is more profitable based on both the return on asset ratio and profit margin. D. Company B is more profitable based on the return on asset ratio, but not the profit margin.

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Company A Company B Net income               55,000.00           100,000.00 Sales            600,000.00        1,200,000.00 Average Total Assets            340,000.00           800,000.00 Profit Margin = Income / Sales 9.17% 8.33% ROA = Income /Assets 16.18% 12.50% Thus answer is Company A is more profitable based on both the return on asset ratio and profit margin

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