Question

Profitability Ratios

East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands).

	Fiscal Year 3		Fiscal Year 2
Net income	$132,100		$68,000
Interest expense	2,700		10,200

	Fiscal Year 3		Fiscal Year 2		Fiscal Year 1
Total assets (at end of fiscal year)	$1,919,028		$1,825,416		$1,650,140
Total stockholders' equity (at end of fiscal year)	920,144		901,924		661,294

Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3.

a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place.

Fiscal Year 3	%
Fiscal Year 2	%

b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place.

Fiscal Year 3	%
Fiscal Year 2	%

c. The return on stockholders' equity is   the return on total assets due to the   use of leverage.

d. During fiscal Year 3, East Point’s results were   compared to the industry average. The return on total assets for East Point was   than the industry average. The return on stockholders’ equity was   than the industry average. These relationships suggest that East Point has   leverage than the industry, on average.

Answer 1

Part 1		Year 3	Year 2
	Return on Assets =Net Income / Average Total Assets
	Average Total Assets =(Opening Total Assets+Closing Total Assets) / 2	($1,825,416+$1,919,028)/2 $1,872,222	($1,650,140+$1,825,416)/2 $1,737,778
	Return on Assets =Net Income / Average Total Assets	$132,100/$1,872,222 =7.06%	$68,000/$1,737,778 =3.91%
Part 2		Year 3	Year 2
	Return on equity =Net Income / Average Shareholders equity
	Average Shareholders equity =(Opening Shareholders equity+Closing Shareholders equity) / 2	($901,924+$920,144)/2 $911,034	($661,294+$901,924)/2 $756,609
	Return on equity =Net Income / Average Shareholders equity	$132,100/$911,034 =14.50%	$68,000/$756,609 =8.99%
	Part C and Part D are not clear, what is the question in those two(if there is)