WidgetCo and Tools Inc -Which of the Following Statements Best Explains the Difference in They

question 74

Multiple Choice

WidgetCo and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data
$$\begin{array} { | l | c | c | } \hline & \text { WidgetCo } & \text { Tools } \\\hline \begin{array} { l } \text { Net operating assets /common } \\\text { equity }\end{array} & 1.37 & 1.53 \\\hline \text { Net operating profit margin } & 19 \% & 21 \% \\\hline \text { Income tax rate } & 47 \% & 28 \% \\\hline \text { Revenues/net operating assets } & 0.81 & 0.61 \\\hline \text { EBIT/revenues } & 38 \% & 32 \% \\\hline\end{array}$$
-Which of the following statements best explains the difference in observed net operating asset turnovers?

• A) WidgetCo's lower financial leverage
• B) WidgetCo uses FIFO and Tools uses LIFO
• C) WidgetCo's lower tax rate
• D) WidgetCo has significant operating leases and Tool has no leases

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Definitions:

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