Widget Co. and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data:
$\begin{array}{lll}&\text { Widget Co. }&\text { Tools Inc. }\
\text { Net operating assets/common equity } & 1.37 & 1.53 \
\text { Net operating profit margin } & 19 \% & 21 \% \
\text { Income tax rate } & 47 \% & 28 \% \
\text { Revenues/net operating assets } & 0.81 & 0.61 \
\text { EBIT/revenues } & 38 \% & 32 \%
\end{array}$
-Which of the following statements is correct?

Question

Widget Co. and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data:
 $\begin{array}{lll}&\text { Widget Co. }&\text { Tools Inc. }\
\text { Net operating assets/common equity } & 1.37 & 1.53 \
\text { Net operating profit margin } & 19 \% & 21 \% \
\text { Income tax rate } & 47 \% & 28 \% \
\text { Revenues/net operating assets } & 0.81 & 0.61 \
\text { EBIT/revenues } & 38 \% & 32 \%
\end{array}$
-Which of the following statements is correct?

Quizplus · Accepted Answer

RNOA (Return on Net Operating Assets) is calculated as NOPAT (Net Operating Profit After Taxes) divided by Net Operating Assets. For both companies, NOPAT can be derived from the given EBIT (Earnings Before Interest and Taxes) by adjusting for the tax rate. The EBIT/revenues ratio allows us to find the operating profit margin, and the revenues/net operating assets ratio helps in understanding how efficiently the companies use their assets to generate sales. Given the data, Widget Co. has a higher RNOA because it utilizes its assets more efficiently to generate revenue (higher revenues/net operating assets ratio) and has a competitive operating profit margin, despite having a higher tax rate.

Widget Co and Tools Inc -Which of the Following Statements Is Correct? A)Widget Has Higher

Widget Co and Tools Inc -Which of the Following Statements Is Correct?
A)Widget Has Higher