Companies in the tire manufacturing business use a lot of property, plant, and equipment. Cooper Tire & Rubber Company “. . . is a leading manufacturer and marketer of replacement tires. It is the fifth largest tire manufacturer in North America and, according to a recognized trade source, the Cooper family of companies is the thirteenth largest tire company in the world based on sales.”
Goodyear Tire & Rubber is “one of the world’s leading manufacturers of tires, engaging in operations in most regions of the world. . . . we develop, manufacture, market and distribute tires for most applications. . . . In addition, we operate approximately 1,000 tire and auto service center outlets where we offer our products for retail sale and provide automotive repair and other services.”
The following information was taken from the companies’ December 31, 2018, annual reports. All dollar amounts are in millions.
Required
a. Calculate depreciation costs as a percentage of sales for each company.
b. Calculate property, plant, and equipment as a percentage of total assets for each company.
c. Based only on the percentages calculated in Requirements a and b, which company appears to be using its assets most efficiently? Explain your answer.
d. Calculate the return-on-assets ratio for each company. Based on this ratio, which company appears to be using its assets most efficiently? Explain your answer.
e. Identify some of the problems a financial analyst would encounter in comparing the use of longterm assets at Cooper versus Goodyear.
