Reference no: EM13533058

Phelan Corporation and Keevin Corporation, two companies of roughly the same size, are both involved in the manufacture of shoe-tracing devices. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the information shown below.

	Phelan Corp.	Keevin Corp.
Net income	$ 240,000	$ 300,000
Sales	1,150,000	1,200,000
Total assets (average)	3,200,000	3,000,000
Plant assets (average)	2,400,000	1,800,000
Intangible assets (goodwill)	300,000	0

Instructions

(a) For each company, calculate these values:

(1) Return on assets ratio.

(2) Profit margin.

(3) Asset turnover ratio.

(b) Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales. What factors complicate your ability to compare the two companies?