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Sara Togas sells all its output to Federal Stores
Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms:
| Sales | Interest Payment | Net Income | Assets at Start of Year | |
| Federal Stores | $101 | $5 | $11 | $51 |
| Sara Togas | 21 | 2 | 5 | 20.5 |
Assume tax rate is 35%.
1 Calculate the sales-to-assets ratio, the operating profit margin, and the return on assets for the two firms.
2 Now assume that the two companies merge. If Federal continues to sell goods worth $101 million, how will the three ratios change?
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