YRC Worldwide Union Pacific
C.H. Robinson
Worldwide Inc.
Net sales $4,334,640 $16,965,000 $9,274,305
Average total assets 2,812,504 42,636,000 1,914,974
a. Determine the ratio of net sales to assets for all three companies. Round to one decimal place.
b. Assume that the ratio of net sales to assets for each company represents their respective industry segment. Interpret the differences in the ratio of net sales to assets in terms of the operating characteristics of each of the respective segments.
Answer:
a. Ratio of Net Sales to Total Assets = Net Sales
Average Total Assets
YRC Worldwide: $4,334,640
$2,812,504 = 1.5
Union Pacific: $16,965,000
$42,636,000 = 0.4
C.H. Robinson Worldwide Inc.: $9,274,305
$1,914,974 = 4.8
b. The ratio of net sales to assets measures the number of sales dollars earned for each dollar of assets. The greater the number of sales dollars earned for every dollar of assets, the more efficient a firm is in using assets. Thus, the ratio is a measure of the efficiency in using assets. The three companies are different in their efficiency in using assets, because they are different in the nature of their operations. Union Pacific earns only 40 cents for every dollar of assets. This is because Union Pacific is very asset intensive. That is, Union Pacific must invest in locomotives, railcars, terminals, tracks, right-of-way, and information systems in order to earn revenues. These investments are significant. YRC Worldwide is able to earn $1.50 for every dollar of assets, and thus is able to earn more revenue for every dollar of assets than the railroad. This is because the motor carrier invests in trucks, trailers, and terminals, which require less investment per dollar of revenue than does the railroad. Moreover, the motor carrier does not invest in the highway system, because the government owns the highway system. Thus, the motor carrier has no investment in the transportation network itself, unlike the railroad. C.H. Robinson Worldwide Inc., the transportation arranger, hires transportation services from motor carriers and railroads, but does not own these assets itself. The transportation arranger has assets in accounts receivable and information systems but does not require transportation assets; thus, it is able to earn the highest revenue per dollar of assets.