Question

Selected hypothetical comparative statement data are presented here. All balance sheet data are as of the end of the fiscal year (in millions).

2022 2021
Net sales $4,950.2 $4,900.0
Cost of goods sold 3,900.9 4,000.9
Net income 55.0 190.9
Accounts receivable 65.0 104.4
Inventory 1,250.1 1,350.1
Total assets 2,850.0 3,150.0
Total common stockholders’ equity 910.3 1,070.2

Compute the following ratios for 2022. (Round asset turnover to 2 decimal places, e.g 1.83 and all other answers to 1 decimal place, e.g. 1.8 or 2.5%)
(a) Profit margin, enter profit margin in percentages rounded to 1 decimal place.
(b) Asset turnover, enter asset turnover in times rounded to 2 decimal places.
(c) Return on assets, enter return on assets in percentages rounded to 1 decimal place.
(d) Return on common stockholders’ equity, enter return on common stockholders' equity in percentages rounded to 1 decimal place.
(e) Gross profit rate, enter gross profit rate in percentages rounded to 1 decimal place.

Answer 1

(a) Profit margin = 1.1%

(b) Asset turnover = 1.65 times

(c) Return on assets = 173.7%

(d) Return on common stockholders’ equity = 543.8%

(e) Gross profit rate = 21.2%

Step-by-step explanation:

(a) Profit margin, enter profit margin in percentages rounded to 1 decimal place.

Profit margin = Net income/Net sales = $55.0/$4,950.2 = 0.011, or 1.1%

(b) Asset turnover, enter asset turnover in times rounded to 2 decimal places.

Asset turnover = $4,950/[($3,150.0 + $2,850.0)/2] = 1.65 times

(c) Return on assets, enter return on assets in percentages rounded to 1 decimal place.

Return on assets = Net income/Total assets = $4,950.2/$2,850.0 = 1.737, or 173.7%

(d) Return on common stockholders’ equity, enter return on common stockholders' equity in percentages rounded to 1 decimal place.

Return on common stockholders’ equity = $4,950.2/$910.3 = 5.438, or 543.8%

(e) Gross profit rate, enter gross profit rate in percentages rounded to 1 decimal place.

Gross profit = Net sales - Cost of goods sold = $4,950.2 - $3,900.9 = $1,049.30

Gross profit rate = Gross profit/Net sales = 1,049.30/$4,950.2 = 0.212, or 21.2%.