Question

Cullumber Company reports the following information (in millions) during a recent year: net sales, $12,105.0; net earnings, $355.0; total assets, ending, $5,825.0; and total assets, beginning, $4,090.0. Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin.

Answer 1

Answer:

1. 0.07161

2. 2.43

3. 0.02932

Explanation:

1. The computation of the return on total assets is shown below:

Return on assets = (Net income) ÷ (average of total assets)

where,

Net income is $355

Average total assets = (Beginning total assets + ending total assets) ÷ 2

                                   = ($4,090 + $5,825) ÷ 2

                                   = $4,957.50

Now put these values to the above formula  

So, the ratio would equal to

= $355 ÷ $4,957.50

= 0.07161

2. The computation of the assets turnover is shown below:

Total asset turnover = (Net Sales ÷  average of total assets)

                                   = ($12,105 ÷ $4,957.50)

                                   = 2.43

3. The computation of the profit margin is shown below:

= (Net earnings ÷ net sales) × 100

= ($355 ÷ $12,105) × 100

= 0.02932