Problem Two: Identify Industries
Below Are Selected Ratios for Three

question 28

Essay

Problem Two: Identify Industries
Below are selected ratios for three companies which operate in three different industries: Discount Retail Store, Drug and Utility. $$\begin{array}{l}\begin{array} { l c c c } \text { Industry } & \mathbf { A } & \mathbf { B } & \mathbf { C } \\\text { COGS/Sales } & 80 \% & 58 \% & \text { n/a } \\\text { R\&D/Sales } & 0 \% & 7 \% & 0.1 \% \\\text { Advertising/Sales } & \text { not defined } & 3 \% & 0.1 \% \\\text { Interest/Sales } & 0.9 \% & 1 \% & 6 \% \\\text { Net Income/Sales } & 2.5 \% & 10 \% & 10 \% \\\text { Return on Assets } & 8.5 \% & 10.6 \% & 7.2 \% \\\text { Inventory Turnover } & 5.5 & 4 & \mathbf { n } / \mathrm { a } \\\text { Accounts Receivable Turnover } & 100 & 6 & 9 \\\text { Long-term Debt/Equity } & 60 \% & 50 \% & 92 \%\end{array}\\\\\mathrm { n } / \mathbf { a } = \text { not applicable }\end{array}$$
Identify which industry each of the companies A, B and C operate in. Give two reasons for each of your selections.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the rate applied to each additional dollar of income.

Net Pay

The amount of money an employee receives after deductions like taxes and social security charges are subtracted from the gross pay.

Laffer Curve

A representation of the relationship between rates of taxation and the resulting levels of government revenue that illustrates there can be an optimum tax rate that maximizes revenue.

Tax Revenues

The income that is collected by governments through taxation.