Question

Easter Egg and Poultry Company has $1,040,000 in assets and $649,000 of debt. It reports net income of $120,000. a. What is the firm’s return on assets? (Enter your answer as a percent rounded to 2 decimal places.) b. What is its return on stockholders’ equity? (Enter your answer as a percent rounded to 2 decimal places.) c. If the firm has an asset turnover ratio of 4 times, what is the profit margin (return on sales)? (Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Answer:

A. 11.54%

B. 30.69%

C. 2.88

Explanation:

Return on assets = net income/ total assets

= $120,000 / $1,040,000 = 0.115385 = 11.54%

Return on equity = net income/ total equity

Total equity = total assets - liabilities = $1,040,000 - $649,000 = $391,000

$120,000 / $391,000 = 0.3069 = 30.69%

Profit margin = gross profit/ revenue

Asset turnover = revenue / total asset

4 = revenue / $1,040,000

Revenue = $4,160,000

Profit margin = $120,000 / $4,160,000 = 0.0288 = 2.88

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