Question

The following information is from the 2017 annual report of Weber Corporation, a company that supplies manufactured parts to the household appliance industry.

Average total assets	$	24,500,000
Average interest-bearing debt		10,000,000
Average other liabilities		2,250,000
Average shareholders' equity		12,250,000
Sales		49,000,000
Interest expense		800,000
Net income		2,450,000

Required:

1. Compute Weber Corporation’s return on assets (ROA) for 2017 using a combined federal and state income tax rate of 40% where needed.
2. Compute the profit margin and asset turnover components of ROA for 2017.
3. Weber’s management believes that various business initiatives will produce an asset turnover rate of 2.25 next year. If the profit margin next year is unchanged from 2017, what will be the company’s ROA?

(Do not round your intermediate calculations. Round your final answers to 2 decimal places.)

The following information is from the 2017 annual report of Weber Corporation, a company that supplies manufactured parts to the household appliance industry.

Average total assets	$	24,500,000
Average interest-bearing debt		10,000,000
Average other liabilities		2,250,000
Average shareholders' equity		12,250,000
Sales		49,000,000
Interest expense		800,000
Net income		2,450,000

ROA Profit margin Asset turnover 3. ROA 11.63% 5.98% 2.00 times 13.46%

Required:

1. Compute Weber Corporation’s return on assets (ROA) for 2017 using a combined federal and state income tax rate of 40% where needed.
2. Compute the profit margin and asset turnover components of ROA for 2017.
3. Weber’s management believes that various business initiatives will produce an asset turnover rate of 2.25 next year. If the profit margin next year is unchanged from 2017, what will be the company’s ROA?

(Do not round your intermediate calculations. Round your final answers to 2 decimal places.)

The following information is from the 2017 annual report of Weber Corporation, a company that supplies manufactured parts to the household appliance industry.

Average total assets	$	24,500,000
Average interest-bearing debt		10,000,000
Average other liabilities		2,250,000
Average shareholders' equity		12,250,000
Sales		49,000,000
Interest expense		800,000
Net income		2,450,000

Required:

1. Compute Weber Corporation’s return on assets (ROA) for 2017 using a combined federal and state income tax rate of 40% where needed.
2. Compute the profit margin and asset turnover components of ROA for 2017.
3. Weber’s management believes that various business initiatives will produce an asset turnover rate of 2.25 next year. If the profit margin next year is unchanged from 2017, what will be the company’s ROA?

(Do not round your intermediate calculations. Round your final answers to 2 decimal places.)

Answer 1

1.

ROA = (Net Income / average total assets) * 100

Net Income = 2450000

Average total assets = 24500000

ROA = (2450000 / 24500000) * 100 = 10%

2.

Profit Margin = (Net Income / Sales) * 100

= (2450000 / 49000000) * 100 = 5%

Asset Turnover ratio = Sales / Average total assets

= 49000000 / 24500000 = 2

3.

ROA = (Net Income / Average total assets)

= (Net Income / Sales) * (Sales / Average total assets)

= Profit Margin * Asset Turnover

Profit margin = 5% (unchanged from 2017)

Asset Turnover = 2.25

ROA = 5% * 2.25 = 11.25%

Summary

1. ROA for 2017 = 10%

2. Profit Margin = 5%

Asset Turnover = 2

3. ROA for next year = 11.25%