Easter Egg and Poultry Company has $1,710,000 in assets and $698,000 of debt. It reports net income of $196,000. a. What is the firm’s return on assets? (Enter your answer as a percent rounded to 2 decimal places.) b. What is its return on stockholders’ equity? (Enter your answer as a percent rounded to 2 decimal places.) c. If the firm has an asset turnover ratio of 3.5 times, what is the profit margin (return on sales)? (Enter your answer as a percent rounded to 2 decimal places.)

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stokholm stokholm · Answer 1 · 2019-07-23T09:42:44+02:00

Answer:

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%

Explanation:

a) Return on assets = [tex]\frac{Net Income}{Total Assets} X 100[/tex]

= [tex]\frac{196,000}{1,710,000} X 100 = 11.46 percent[/tex]

b) Return on stockholder's equity = [tex]\frac{Net income}{Equity} X 100[/tex]

Equity =Total assets - Debt = $1,710,000 - $698,000 = $1,012,000

Return on equity = [tex]\frac{196,000}{1,012,000} X100 = 19.37 percent[/tex]

c) Asset Turnover ratio = [tex]\frac{Net Sales}{Total Assets}[/tex] = 3.5

then Net sales = 3.5 X Total Assets = = 3.5 X $1,710,000 = $5,985,000

Profit margin = [tex]\frac{Net profit}{Net sales} X 100 [tex]= \frac{196,000}{5,985,000} X 100 = 3.27 percent[/tex]

a) Firm’s return on assets = 11.46 %

b) Return on stockholders’ equity = 19.37%

c) Profit margin = 3.27%