Question

Easter Egg and Poultry Company has $1,710,000 in assets and $698,000 of debt. It reports net income of $196,000. 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 3.5 times, what is the profit margin (return on sales)? (Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

Answer:

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%

Explanation:

a) Return on assets = $\frac{Net Income}{Total Assets} X 100$

= $\frac{196,000}{1,710,000} X 100 = 11.46 percent$

b) Return on stockholder's equity = $\frac{Net income}{Equity} X 100$

Equity =Total assets - Debt = $1,710,000 - $698,000 = $1,012,000

Return on equity = $\frac{196,000}{1,012,000} X100 = 19.37 percent$

c) Asset Turnover ratio = $\frac{Net Sales}{Total Assets}$ = 3.5

then Net sales = 3.5 X Total Assets = = 3.5 X $1,710,000 = $5,985,000

Profit margin = $\frac{Net profit}{Net sales} X 100 [tex]= \frac{196,000}{5,985,000} X 100 = 3.27 percent$

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%