QUESTION 4 Incomplete answer Marked out of 2500 Comparing Op

QUESTION 4 Incomplete answer Marked out of 25.00 Comparing Operating Characteristics Across Industries Following are selected income statement and balance sheet data for companies in different industries s millionsSalesGoods Goods Sold GrossProfit: Net Income Assets Cost of Gross Profit Net Income AssetsLiabilities Equity Target Corp.$73,785 $51,997 $21.788 $3.363 $40.262 $27,305 $12957 Nike, Inc. Harley Davidsor Cisco Systems 32,376 17,405 14,971 3.760 21,396 9.138 12,258 5,995 3,620 2,375 752 9991 49247 18,.287 30,960 10.739121652$8.067 18,287 (a) Compute the following ratios for each company Round all answers to one decimal place (percentage answer example: 0.2345-23.5%) Net Income/ i Liabilities/ Gross Profit/ Net Income! stockholders Stockholders Company Sales Equity Equity orp

Solution

a.

b. We know that gross profit = sales – cost of goods sold. A company will be able to earn higher gross profit only when it is able to charge a premium for its products (relative to its competitors). This can only be done when they have some competitive advantage.

So the answer is the 1^st option – “the higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away”.

c. “Harley Davidson”. It has the highest ratio of 40.9%.

The answer is option “3” - The highest return on equity companies are those that are able to sustain some competitive advantage that leads to higher profitability and are also able to minimize their use of equity.

d. “Harley Davidson”. Its liabilities as a percentage of equity is 443.0%.

The answer is option “3” - Companies that can sustain higher levels of debt are typically those with the most stable and positive cash flows.

Company	Gross profit/sales	Net income/sales	Net income/stockholder\'s equity	Liabilities/stockholder\'s equity
Target	29.5%	4.6%	26.0%	210.7%
Nike	46.2%	11.6%	30.7%	74.5%
Harley Davidson	39.6%	12.5%	40.9%	443.0%
Cisco	62.9%	21.8%	16.9%	91.3%