Widget Co and Tools Inc -Which of the Following Statements Is the Most Plausible Explanation

Widget Co. and Tools Inc. both operate in the same industry. They are capital-intensive companies producing widgets. Below are selected data:
$\begin{array}{lll}&\text { Widget Co. }&\text { Tools Inc. }\\\text { Net operating assets/common equity } & 1.37 & 1.53 \\\text { Net operating profit margin } & 19 \% & 21 \% \\\text { Income tax rate } & 47 \% & 28 \% \\\text { Revenues/net operating assets } & 0.81 & 0.61 \\\text { EBIT/revenues } & 38 \% & 32 \%\end{array}$
-Which of the following statements is the most plausible explanation of the difference in observed net operating profit margins?

A) Widget Co's lower financial leverage
B) Widget Co uses LIFO and Tools uses FIFO
C) Widget Co's lower tax rate
D) Widget Co's net operating asset turnover

Correct Answer:

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