Which of the following statements is the most plausible explanation of the difference in observed net operating profit margins?
Widget Co. and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data:
Widget Co. Tools Inc.
Net operating assets/common equity 1.37 1.53
Net operating profit margin 19% 21%
Income tax rate 47% 28%
Revenues/net operating assets 0.81 0.61
EDIT/revenues 38% 32%
Widget Co's lower financial leverage
Widget Co uses LIFO and Tools uses FIFO
Widget Co's lower tax rate
Widget Co's net operating asset turnover
