Question

Blossom Company reports the following information (in millions) during a recent year: net sales, $10,000.0; net earnings, $200.0; total assets, ending, $4,000.0; and total assets, beginning, $4,000.0. (a) Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin. (Round answers to 1 decimal place, e.g. 6.2% and 6.2.)

Answer 1

To calculate the return on assets, asset turnover, and profit margin, divide the relevant values as explained in the detailed answer. The return on assets for Blossom Company is 2.5%, the asset turnover is 2.5, and the profit margin is 2%.

Step-by-step explanation:

To calculate the return on assets (ROA), you need to divide the net earnings by the average total assets. In this case, the average total assets can be calculated by adding the beginning and ending total assets and dividing by 2. Therefore, the ROA is calculated as (200 / ((4000 + 4000) / 2)) = 0.025, or 2.5%.

The asset turnover ratio is calculated by dividing net sales by average total assets. Using the same formula as above, the asset turnover in this case is 10,000 / ((4000 + 4000) / 2) = 2.5.

The profit margin is calculated by dividing net earnings by net sales. So, the profit margin in this case is 200 / 10,000 = 0.02, or 2%