You have the following information for Humpty Co. (HC) and Dumpty Co. (DC). Calc

Question

You have the following information for Humpty Co. (HC) and Dumpty Co. (DC). Calculate their ROA using the disaggregation method. Based on your calculations and using Porter's framework, which of the following statements about their business strategy is the most correct:

Both HC and DC follow low-cost leadership strategy.

DC is follows a differentiation strategy whereas HC follows a low-cost leadership strategy.

HC is follows a differentiation strategy whereas DC follows a low-cost leadership strategy.

Both HC and DC follow differentiation stratgegy.

Humpty Co. (HC) Dumpty Co. (DC) Average Sales $10,000 $240,000 Average Net Income $1,200 $4,800 Average Total Assets $5,000 $20,000 Interest Expense 0 0 Tax Rate 35% 35%

Explanation / Answer

ROA = NPM * TAT

WHERE, NPM = NET PROFIT MARGIN

TAT = TOTAL ASSEST TURNOVER

FIRST WE CALCULATE NPM OF HUMPTY CO..

NPM = NET INCOME / TOTAL REVENUE

= 1200/10000

= .12

ROA = .12* 5000

= 600

NOW CALCULATE DUMPTY CO

NPM = 4800/240000

= .02

NOW ROA = 0.02 * 20000

= 400

BY USING THIS WE CAN SAY THAT

BOTH HC AND DC FOLLOW DIFERENTIATION STRAGEGY.

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