Essay of Bs

Topics: Generally Accepted Accounting Principles, Financial ratios, Balance sheet, Profit margin, Revenue / Pages: 9 (2220 words) / Published: Dec 3rd, 2012
Chapter 2

EXERCISES/PROBLEMS AND ANSWERS 1. Following is financial information for three ventures: Venture XX Venture YY Venture ZZ After-tax Profit Margins 5% 15% 25% Asset Turnover 2.0 times 1.0 times 3.0 times A. Calculate the return on assets for each firm. Venture XX: 5% x 2.0 = 10% Venture YY: 15% x 1.0 = 15% Venture ZZ: 25% x 3.0 = 75% B. Which venture is indicative of a strong entrepreneurial venture opportunity? Venture ZZ seems to represent a strong entrepreneurial venture opportunity based on a very high return on assets financial measure. C. Which venture seems to be more of a commodity type business? Venture XX seems to be more of a commodity type of business as indicated by a relatively low return on assets. D. How would you place these three ventures on a graph similar to Figure 2.8? Venture ZZ would be a Case 1 type of venture opportunity (very high profit margin). However, Venture ZZ’s also high turnover would place the venture above the ROA curve. Venture XX would be a Case 2 type of venture opportunity (low profit margin). Venture YY would fall between the other two ventures (both in terms of profit margin and asset turnover ratios). E. Use the information in Figure 2.7 relating to pricing/profitability, and “score” each venture in terms of potential attractiveness. Pricing/Profitability Venture XX Venture YY Venture ZZ Gross margins NA NA NA After-tax margins 1 2 3 Asset intensity 2 2 2 Return on assets 2 2 3 Total points 5 6 8 2. In 2005, Brandie Cook founded Brandie’s Micro-Batch Frozen Yogurt, which was based on the idea of applying the microbrew beer strategy to the production and sale of frozen yogurt. She began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in

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