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Here are comparative statement data for Duke Company and Lord Company, two competitors
Here are comparative statement data for Duke Company and Lord Company, two competitors. All balance sheet data are as of December 31, 2020, and December 31, 2019.
Duke Company Lord Company 2020 2019 2020 2019 Net sales $1,860,000 $561,000 Cost of goods sold 1,030,440 297,330 Operating expenses 265,980 78,540 Interest expense 7,440 3,927 Income tax expense 53,940 6,171 Current assets 327,000 $314,500 83,800 $78,000 Plant assets (net) 522,000 500,300 138,300 123,900 Current liabilities 64,200 75,000 36,800 29,600 Long-term liabilities 108,800 91,400 30,200 25,200 Common stock, $10 par 503,000 503,000 120,500 120,500 Retained earnings 173,000 145,400 34,600 26,600
(b1)
Compute the 2020 return on assets and the return on common stockholders' equity ratios for both companies. (Round answers to 1 decimal place, e.g. 12.1%.)
Duke Company Lord Company
Return on assets
Return on common stockholders' equity
% %
% %
Expert Solution
| Vertical Income Statement | |||||
| DUKE COMPANY | LORD COMPANY | ||||
| Particulars | Amount | Amount | |||
| Net sales | $1,860,000 | $561,000 | |||
| Less: Cost of goods sold | $1,030,440 | $297,330 | |||
| Gross margin | $829,560 | $263,670 | |||
| Less: Operating expenses | $265,980 | $78,540 | |||
| Operating income (EBIT) | $563,580 | $185,130 | |||
| Less: Interest expenses | $7,440 | $3,927 | |||
| Earnings before tax | $556,140 | $181,203 | |||
| Less: Income tax expenses | $53,940 | $6,171 | |||
| Net income | $502,200 | $175,032 | |||
| Ans. 2 | Return on assets = Net income / Average assets * 100 | ||||
| Duke company | $502,200 / $831,900 * 100 | 60.37% | |||
| Lord company | $175,032 / $212,000 * 100 | 82.56% | |||
| Return on Common stockholder's equity = Net income / Average Common stockholder's equity * 100 | |||||
| Duke company | $502,200 / $662,200 * 100 | 75.84% | |||
| Lord company | $175,032 / $151,100 * 100 | 115.84% | |||
| * As the return on assets and return on common stockholder's equity of Lord company is higher than Duke company | |||||
| so we can say that Lord company is more profitable. | |||||
| *CALCULATIONS OF AVERAGE ASSETS: | |||||
| DUKE COMPANY | LORD COMPANY | ||||
| 2020 (ending) | 2019 (beginning) | 2020 (ending) | 2019 (beginning) | ||
| Current assets | $327,000 | $314,500 | $83,800 | $78,000 | |
| Plant assets | $522,000 | $500,300 | $138,300 | $123,900 | |
| Total assets | $849,000 | $814,800 | $222,100 | $201,900 | |
| *Average assets = (Beginning assets + Ending assets) / 2 | |||||
| DUKE COMPANY | ($814,800+$849,000) / 2 | ||||
| $831,900.00 | |||||
| LORD COMPANY | ($201,900+$222,100) / 2 | ||||
| $212,000.00 | |||||
| *CALCULATIONS OF AVERAGE EQUITY: | |||||
| DUKE COMPANY | LORD COMPANY | ||||
| 2020 (ending) | 2019 (beginning) | 2020 (ending) | 2019 (beginning) | ||
| Common stock | $503,000 | $503,000 | $120,500 | $120,500 | |
| Retained earnings | $173,000 | 145400 | $34,600 | $26,600 | |
| Total equity | $676,000 | $648,400 | $155,100 | $147,100 | |
| Average equity = (Beginning equity + Ending equity) / 2 | |||||
| DUKE COMPANY | ($648,400+$676,000)/2 | ||||
| $662,200.00 | |||||
| LORD COMPANY | ($147,100+$155,100)/2 | ||||
| $151,100 | |||||
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