Question

The 2021 income statement of Adrian Express reports sales of $19.310.000. cost of goods sold of $12,250,000, and net income of $1,700,000. Balance sheet information is provided in the following table. ADRIAN EXPRESS Balance Sheets December 31, 2021 and 2020 2021 2e2e Assets Current assets: Cash Accounts receivable Inventory Long-term assets Total assets Liabilities and Stockholders' Equity Current liabilities Long-term liabilities Common stock Retained earnings Total liabilities and stockholders' equity $ 700,000 1,600,000 2,000,000 4,900,000 $9, 200,000 $ 860,000 1,100,000 1,500,000 4,340,000 $7,800, eae $1,920,000 2,400,000 1.900.000 2,980,000 $9,200,000 $1,760,000 2,500,000 1.900,800 1.640.ece $7,8ee, eee Industry averages for the following profitability ratios are as follows: Gross profit ratio Return on assets Profit margin Asset turnover Return on equity 25% 15% 2.5tines 35%
Required:
Calculate the five profitability ratios listed above for Adrian Express
(Round your answers to 1 decimal place.) Profitability Ratios Gross profit ratio Return on assets Profit margin Asset turnover Return on equity

Answer 1

Answer:

The Gross profit ratio is 36.6%

The Return on assets is 20%

The Profit margin is 8.8%

The Asset turnover would be 2.3 times

The Return on equity is 40.4%

Explanation:

The calculation of the five profitability ratios listed would be a follows:

Gross profit = Sales - Cost of goods sold

= $19,310,000 - $12,250,000

= $7,060,000

Gross profit ratio = Gross profit / Sales * 100

= $7,060,000 / $19,310,000 * 100

= 36.6%

The Gross profit ratio is 36.6%

Return on assets = Net income / Average total assets * 100

= $1,700,000 / [($9,200,000+$7,800,000)/2] * 100

= 20%

The Return on assets would be 20%

Profit margin = Net profit / Sales * 100

= $1,700,000 / $19,310,000 * 100

= 8.8%

The Profit margin would be 8.8%

Asset turnover = Sales / Average total assets

= $19,310,000 / [($9,200,000+$7,800,000)/2]

= 2.3 times

The Asset turnover would be 2.3 times

Return on equity = Net income / Average total equity

= $1,700,000 / [($1,900,000+$2,980,000+$1,900,000+$1,640,000)/2]

= 40.4%

The Return on equity would be 40.4%