Question

Assume the following data for Cable Corporation and Multi-Media Inc.

	Capable corporation	Muli-media inc
Net income	\(31,200	\)140,000
Sales	317,000	2,700,000
Total assets	402,000	965,000
Total debts	163,000	542,000
Stockholder’s equity	239,000	423,000

b. Compute the following additional ratios for both firms:

Net income/Sales

Net income/Total assets

Sales/Total assets

Debt/Total assets

Short answer

	Capable corporation	Multi medi Inc.
Net income/sales	9.84%	5.19%
Net income/Total assets	7.76%	14.51%
Sales/Total assets	78.86%	279.79%
Debt/Total assets	40.55%	56.17%

Step-by-step solution

Net income/sales ratio of capable corporation

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}/\mathrm{Sales}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Sales}}\\ & =& \frac{\$31,200}{\$317,000}\\ & =& 9.84\%\end{array}$

Net income/sales ratio of Multimedia inc.

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}/\mathrm{Sales}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Sales}}\\ & =& \frac{\$140,000}{\$2,700,000}\\ & =& 5.19\%\end{array}$

Net income/Total assets ratio of capable corporation

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}/\mathrm{Total}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$31,200}{\$402,000}\\ & =& 7.76\%\end{array}$

Net income/Total assets ratio of Multimedia inc. 

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}/\mathrm{Total}\mathrm{assets}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$140,000}{\$965,000}\\ & =& 14.51\%\end{array}$

Sales/Total assets ratio of capable corporation

$\begin{array}{rcl}\mathrm{Sales}/\mathrm{Total}\mathrm{assets}& =& \frac{\mathrm{Sales}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$317,000}{\$402,000}\\ & =& 78.86\%\end{array}$

Sales/Total assets ratio of Multimedia inc. 

$\begin{array}{rcl}\mathrm{Sales}/\mathrm{Total}\mathrm{assets}& =& \frac{\mathrm{Sales}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$2,700,000}{\$965,000}\\ & =& 279.79\%\end{array}$

Debt/Total assets ratio of capable corporation

$\begin{array}{rcl}\mathrm{Debts}/\mathrm{Total}\mathrm{assets}& =& \frac{\mathrm{Debt}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$163,000}{\$402,000}\\ & =& 40.55\%\end{array}$

Debts/Total assets ratio of Multimedia inc. 

$\begin{array}{rcl}\mathrm{Debt}/\mathrm{Total}\mathrm{assets}& =& \frac{\mathrm{Debt}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$542,000}{\$965,000}\\ & =& 56.17\%\end{array}$