Following are selected income statement and balance sheet data for companies in different industries.
$ millions Sales Cost of Gross profit Net income Assets Liabilities Equity
goods sold
Harley- $ 5,342 $ 3,302 $ 2,040 $ 960 $ 5,255 $2,171 $ 3,084
Davidson
Nike, Inc. 13,740 7,624 6,116 1,212 8,794 3,149 5,645
Starbucks 6,369 2,605 3,764 494 3,514 1,423 2,091
Corp.
Target 51,271 34,927 16,344 2,408 34,995 20,790 14,205
Corp.
a) Compute the following ratios for each company. Round all answers to one decimal place (percentage answer example: 0.2345 = 23.5%). Note: The liabilities to stockholders' equity ratio should not be converted into a percentage answer (round answers to one decimal place, for
Company Gross Profit/ Net Income/ Net incom/ Liabilities/
sales sales Equity equity
Harley-Davidson
Nike, Inc.
Starbucks Corp.
Target Corp.
(b) Which of the following statements about business models best describes the differences in gross (and net) profit margin that we observe?
a. The higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away.
b. The lower gross profit companies are those that can manufacture their products at the lowest cost.
c. The higher gross profit companies are those that sell the highest unit volumes.
d. The lower gross profit companies are those that charge a higher price for their products.

a.The higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away

Explanation:

Sales Cost Gross profit Net In.Assets Liabilities Equity

Harley- 5,342 3,302 2,040 960 5,255 2,171 3,084

Nike, 13,740 7,624 6,116 1,212 8,794 3,149 5,645

Starbucks6,369 2,605 3,764 494 3,514 1,423 2,091

Target 51,271 34,927 16,344 2,408 34,995 20,790 14,205

Gross Profit Harley- 38.2% Net Income Harley- 18.0%

Nike, 44.5% Nike, 8.8%

Starbucks 59.1% Starbucks 7.8%

Target 31.9% Target 4.7%

Liabilities Harley- 0.70 ROE Harley- 1.7

Nike, 0.56 Nike, 2.4

Starbucks 0.68 Starbucks 3.0

Target 1.46 Target 3.6

a.The higher gross profit companies are typically those that have some competitive advantage that allows them to charge a market price for their products that cannot be easily competed away.