LaPorta Company and Lott Corporation, two corporations of roughly the same size, are both involved in the manufacture of in-line skates. Each company depreciates its plant assets using the straight-line approach. An investigation of their financial statements reveals the following information.
|
LaPorta Co. |
Lott Corp. |
|
|
Net income |
$ 800,000 |
$1,000,000 |
|
Sales revenue |
1,300,000 |
1,180,000 |
|
Average total assets |
2,500,000 |
2,000,000 |
|
Average plant assets |
1,800,000 |
1,000,000 |
Instructions
(a)For each company, calculate the asset turnover.
(b)Based on your calculations in part (a), comment on the relative effectiveness of the two companies in using their assets to generate sales and produce net income.