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

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%

Step-by-step explanation:

a) Return on assets =
`(Net Income)/(Total Assets) X 100`

=
`(196,000)/(1,710,000) X 100 = 11.46 percent`

b) Return on stockholder's equity =
`(Net income)/(Equity) X 100`

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

Return on equity =
`(196,000)/(1,012,000) X100 = 19.37 percent`

c) Asset Turnover ratio =
`(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 =
`(Net profit)/(Net sales) X 100 [tex]= (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%