Comparative statement data for Douglas Company and Maulder Company, tw

QUESTION

Comparative statement data for Douglas Company and Maulder Company, two competitors, appear below. All balance sheet data are as of December 31, 2011, and December 31, 2010.Instructions(a) Prepare a vertical analysis of the 2011 income statement data for Douglas Company and Maulder Company in columnar form.(b) Comment on the relative profitability of the companies by computing the return on assets and the return on common stockholders equity ratios for both companies.
Answer to part A: Douglas Company Percent Maulder Company Percent Net Sales 1,549,035 100.00% 339,038 100.00% Cost of Goods Sold 1,080,490 69.75% 241,000 71.08% Gross Profit 468,545 30.25% 98,038 28.92% Operating Expenses 302,275 19.51% 79,000 23.30% Income before interest and taxes 166,270 10.73% 19,038 5.62% Interest expense 8,980 0.58% 2,252 0.66% Income before taxes 157,290 10.15% 16,786 4.95% Income tax expense 54,500 3.52% 6,650 1.96% Net income 102,790 6.64% 10,136 2.99% Answer to part b: Return on Assets= Net income / Average Total Assets Douglas Company Net income 102790 Average Total Assets 829,848 Return on Assets 12.39% Year 2011 2010 Current Assets 325,975 312,410 Plant Assets 521,310 500,000 Total Assets 847,285 812,410 Average Total Assets 829,848 Maulder Company Total Assets

6 Average Total Assets 214,172 Return on Assets 4.73% Year 2011 2010 Current Assets 83,336 79,467 Plant Assets 139,728 125,812 Total Assets 223,064 205,279 Average Total Assets 214,172 Return on Common Stockholders equity = Net income / Average Common Stock Douglas Company Net income 102,790 Average Common Stock 500,000 Return on equity 20.56% Maulder Company Current Assets 10,136 Average Common Stock 120,000 Return on equity 8.45% Douglas company has higher return on assets as well as return on equity than the Maulder company.

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