Question

The operating profit margin was 13 percent for​ XYZ, Inc. in​ 2018, and it had ​$60 million in​ sales, $ ​$49 million of total​ assets, and $ 17 million of total liabilities. 7 percent is the interest rate for the​ company's debt, and tax rate is 21 percent. Calculate the​ company's operating​ income, net​ income, operating return on assets and return on equity

Answer 1

operating income 7,800,000

net income 5,221,900

operating ROA: 15.91%

ROE : 16.32%

Step-by-step explanation:

operating income

sales x operating profit margin

60,000,000 x 13% = 7,800,000

Now, to get net income we must subtract interest and taxes:

interest: 17,000,000 debt x 7% = 1,190,000

Earnings before taxes: 7,800,000 - 1,190,000 = 6,610,000

And now we apply taxes: 6,610,000 ( 1 - 21%) = 5,221,900

operating return on assets: operating income / total assets

7,800,000 / 49,000,000 = 0,1591836734693878 = 15.91%

return on equity:

net income / equity

equity is solve using the accounting equation:

assets = liab + equity

49,000,000 - 17,000,000 = equity = 32,000,000

5,221,900 / 32,000,000 = 0,163184375‬ = 16.32%