Delicious Limited competes in the fast food industry with Scrumptious Limited. Delicious embarked on a major expansion in 2012, borrowing a large amount of money and acquiring a small competitor. The company did this because the price for the competitor was low due to increased competition. The acquisition doubled the number of restaurants that Delicious has. Scrumptious, on the other hand, took a more conservative approach and did not buy any new assets, focusing instead on a strategy of making existing operations more efficient. Data for the two companies are provided below in millions of dollars:
Instructions
(a) Calculate the profit margin, asset turnover, and return on asset ratios for each company in 2011 and 2012.
(b) Provide an explanation for the year-over-year changes in the ratios calculated in (a).
(c) Comment on which company has been more successful in executing its strategy.
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