Comparative Financial Statement Data for Donovan Company and Maltese Company,two

Essay

Comparative financial statement data for Donovan Company and Maltese Company,two competitors in the same industry,appear below.All balance sheet data are as of December 31,2012,and December 31,2011.

$\begin{array}{lll} \begin{array}{lll}&\text { \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad \quad Donovan Company}&\text { \quad Maltese Company}\\\end{array}\\\begin{array}{|l|r|r|r|r|} \hline& {\mathbf{2 0 1 2}} & \mathbf{2 0 1 1} & {\mathbf{2 0 1 2}} & \mathbf{2 0 1 1} \\\hline \text { Net sales } & \$ 1,549,035 & & \$ 339,038 & \\\hline \text { Cost of goods sold } & 1,080,490 & & 241,000 & \\\hline \text { Operating expenses } & 302,275 & & 79,000 & \\\hline \text { Interest expense } & 8,980 & & 2,252 & \\\hline \text { Income tax expense } & 54,500 & & 6,650 & \\\hline \text { Current Assets } & 325,975 & 312,410 & 83,336 & 79,467 \\\hline \text { Common Stock, } \$ 10 \text { par } & 500,000 & 500,000 & 120,000 & 120,000 \\\hline \text { Retained earnings } & 173,460 & 146,595 & 38,096 & 28,998 \\\hline \text { Non-current liabilities } & 108,500 & 90,000 & 29,620 & 25,000 \\\hline \text { Current liabilities } & 65,325 & 75,815 & 35,348 & 30,281 \\\hline\end{array}\end{array}$
REQUIRED:
(a)Prepare a common-size 2012 income statement using the data for Donovan Company and Maltese Company in columnar form.
(b)Comment on the relative profitability of the companies by computing the return on assets (Net income / Average total assets)and the return on total equity (Net income / Average Shareholders' Equity)ratios for both companies.