Use the following information on Firm A and B (both in the same industry) to ans
ID: 2621391 • Letter: U
Question
Use the following information on Firm A and B (both in the same industry) to answer the questions 20-24:
Firm A
Firm B
Revenue
100,000
140,000
Expenses
80,000
110,000
EBIT
20,000
30,000
Net Income
11,700
17,250
Current Assets
20,000
30,000
Total Assets
50,000
90,000
Current Liabilities
10,000
25,000
Long Term Debt
5,000
25,000
Total Liabilities
15,000
50,000
Equity
35,000
40,000
20. The above information could be used for:
a. Cross Sectional Analysis
b. Times Series Analysis
c. Neither
21. Which firm has a better Operating Profit Margin?
a. Firm A
b. Firm B
c. Can
Firm A
Firm B
Revenue
100,000
140,000
Expenses
80,000
110,000
EBIT
20,000
30,000
Net Income
11,700
17,250
Current Assets
20,000
30,000
Total Assets
50,000
90,000
Current Liabilities
10,000
25,000
Long Term Debt
5,000
25,000
Total Liabilities
15,000
50,000
Equity
35,000
40,000
Explanation / Answer
20) a) cross section analysis
Reason: As information is regarding two firms
21) b) firm B
Reason: operating profit margin = EBIT/sales
so for A,operating profit margin = 20000/100000 = 20%
operating profit margin for B =30000/140000 = 21.43%
22) a) firm A
Reason: return on assets = net income/assets
so for firm A =0.585
and for firm B =0.575
23)a) I is the only reason
Reason: as ROE = net profit margin * sales/asset *asset/equity . So it depends on ratio. not based on debt
24) C)Can