Question

Data from the financial statements of Beautiful Candle Company included the following: Click the icon to view the data.) Read the requirements. Requirements 1. Calculate the following ratios: a. Net profit margin; b. Asset turnover ratio, c. Leverage ratio, d. Return on assets (ROA); e. Return on equity (ROE). a. Begin by selecting the formula labels and then enter the amounts to calculate net profit margin. (Round your answer to one decimal place, X.X%.) = Net profit margin ratio % * Requirements A Data Table 1. Calculate the following ratios: a. Net profit margin d. Return on assets (ROA) b. Asset turnover ratio e. Return on equity (ROE) c. Leverage ratio 2. Which is higher, ROA or ROE? Does this make sense for stockholders? Why or why not? Average total assets. .................$ 60,000 Average common stockholders' equity... 25,000 Net sales... 120,000 Net income 6,000 The company had no preferred stock. Print Done Print Done

Answer 1

1. Computation of the following ratios.

2. Which is higher ROA or ROE ? Does this make sense for stockholders? Why or why not?

Refer to the below images for more detailed solution with explanation.

: & computation of ratios : Realurirement Net income x100 a. Net profit margin ratio = Net sales $ 6000 xroo $120000 5. be Asset turnover ratio Net Average sales total assets 120000 5 60000 2 times - c• Leverage ratio = Average total assets Average common stockholders equity $ 60000 25000 = 2.4 de Return Asset turnover on assers (ROA) - Net protit & Margin Ratio - 5-10 x2 = 10-1- e Return on eauity (ROE) - ROA X Leverage ratio 161-x 2.4 24.4. =

( 2 Requirement o Which is sense for higher Rot (68) ROE 2 Does this make stockholders & why (or) why not ? ROE ROE is higher equals than ROA Rot times This the Answer: makes leverage sense because ratio. As long as the leverage ratio exceeds one, ROE will exced ROA• In this case, the leverage ratio is 2.4 so the ROE will exceed ROA.