Question

Shelton, Inc., has sales of $17.5 million, total assets of $13.1 million, and total debt of $5.7 million. If the profit margin is 6 percent, what is net income? What is ROA? What is ROE?

Sales $ 17,500,000
Total assets $ 13,100,000
Total debt $ 5,700,000
Profit margin 6%
Complete the following analysis. Do not hard code values in your calculations.
Net income
Return on assets
Total equity
Return on equity

Answer 1

Shelton, Inc.'s net income is $1,050,000, with a Return on Assets (ROA) of 8.02% and a Return on Equity (ROE) of 14.19%. Total equity is calculated at $7,400,000.

Step-by-step explanation:

To calculate Shelton, Inc.'s net income, we need to apply the profit margin to the sales figures. The company's profit margin is 6%, so we use the following calculation:

Net Income = Sales x Profit Margin

Net Income = $17,500,000 x 0.06

Net Income = $1,050,000

Next, to find Shelton's Return on Assets (ROA), we divide the net income by the total assets:

ROA = Net Income / Total Assets

ROA = $1,050,000 / $13,100,000

ROA = 0.0802, or 8.02%

To determine total equity, we subtract the total debt from the total assets:

Total Equity = Total Assets - Total Debt

Total Equity = $13,100,000 - $5,700,000

Total Equity = $7,400,000

Finally, we calculate the Return on Equity (ROE) by dividing the net income by total equity:

ROE = Net Income / Total Equity

ROE = $1,050,000 / $7,400,000

ROE = 0.1419, or 14.19%