Comparing Operating Characteristics Across Industries Following are selected inc

Question

Comparing Operating Characteristics Across Industries Following are selected income statement and balance sheet data for companies in different industries. Required Compute the following ratios for each company. 1. Gross profit/Sales 2. Net income/Sales 3. Net income/Stockholders' equity 4. Liabilities/StockhoIders' equity Comment on any differences among the companies' gross profit to sales ratios and net income as a percentage of sales. Do differences in the companies' business models expIain the differences observed. Which company reports the highest ratio of net income to equity? Suggest one or more reasons for this result. Which company has financed itself with the highest percentage of liabilities to equity? Suggest one or more reasons why this company can take on such debt levels.

Explanation / Answer

c) Harley davidson observes the highest income to shareholders equity . The reason for this may be that it caters its product for the elite customers and they have full confidence in the management of the company which is again reflected in the ratio of its net income to shareholders equity as compared to other indsutry ratio's.

d) Target corp has taken the hifhest liabiliites to shareholders equity.

b) There has not been any major difference between the company's gross profit to sales and net profit to sales ratioMore or less all the companies are reporting the same level of protits and times as compared to other.

Ratio's Target corp Nike Inc Harley Davidson Cisco Systems Gross Profit/sales 21472/63367=0.34 8387/18627=0.45 2114/5727=0.37 25484/39540=0.64 Net Profit /sales 2849/63367=0.04 1883/18627=0.10 934/5727=0.16 8052/39540 =0.20 Net Income/Shareholders Equity 2849/15307=0.19 1883/7826=0.24 934/2375=0.39 8052/34402 =0.23 Liabilities /shareolders equity 29253/15307=1.91 4617/7826=0.59 3282/2375 = 1.38 24332/34402 =0.71

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