Widget Co and Tools Inc -Which of the Following Statements Best Explains the Difference in Industry

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 best explains the difference in observed net operating asset turnover?

A) Widget Co's lower financial leverage
B) Widget Co uses FIFO and Tools uses LIFO
C) Widget Co's lower tax rate
D) Widget Co has significant operating leases and Tool Inc. has no leases

Correct Answer:

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