Question

The 2021 income statement of Adrian Express reports sales of $23,110,000, cost of goods sold of $13,200,000, and net income of

$2,460,000. Balance sheet information is provided in the following table.
Assets
Current assets:
Cash
Accounts receivable
Inventory
Long-term assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities
ADRIAN EXPRESS
Balance Sheets
December 31, 2021 and 2020
Long-term liabilities
mmon stock
Retained earnings
Total liabilities and stockholders' equity
Gross profit ratio
Return on assets
Profit margin
Asset turnover
Return on equity
2021
45%
25%
15%
20.5 times
35%
$ 1,080,000
2,075,000
2,665,000
5,280,000
Industry averages for the following profitability ratios are as follows:
2020
$1,050,000
1,385,000
1,975,000
4,530,000
$11,100,000 $8,940,000
$ 2,338,000 $1,988,000
2,742,000 2,728,000
2,375,000 2,185,000
3,645,000 2,039,000
$11,100,000 $8,940,000

Calculate the five profitability ratios listed above for Adrian express. ( round your answers to 1 decimal place )
Gross profit ratio %?
Return on the assets %?
Profit margin %?
Asset turnover ____ times ?
Return on equity %?

Answer 1

The profitability ratios for Adrian Express are calculated from their income statement and balance sheet, resulting in a Gross Profit Ratio of 42.9%, Return on Assets of 22.2%, Profit Margin of 10.6%, Asset Turnover of 2.1 times, and Return on Equity of 40.9%.

Step-by-step explanation:

To calculate the five profitability ratios for Adrian Express, we use the given financial data from the income statement and the balance sheet. Using the formulae for each ratio, we obtain the following results:

Gross profit ratio

: Gross profit is calculated by subtracting the cost of goods sold from sales. Gross Profit = Sales - Cost of Goods Sold = $23,110,000 - $13,200,000 = $9,910,000. Then, the Gross Profit Ratio = (Gross Profit / Sales) * 100 = ($9,910,000 / $23,110,000) * 100 = 42.9%.

Return on assets (ROA)

: ROA is calculated by dividing net income by total assets. ROA = Net Income / Total Assets = $2,460,000 / $11,100,000 = 22.2%.

Profit margin

: Profit Margin = Net Income / Sales = $2,460,000 / $23,110,000 = 10.6%.

Asset turnover

: Asset Turnover = Sales / Total Assets = $23,110,000 / $11,100,000 = 2.1 times.

Return on equity (ROE)

: ROE is calculated by dividing net income by the total equity. Total equity is the sum of common stock and retained earnings, which is $2,375,000 + $3,645,000 = $6,020,000. Therefore, ROE = Net Income / Total Equity = $2,460,000 / $6,020,000 = 40.9%.