Question

4. 2.77 points Easter Egg and Poultry Company has $1,810,000 in assets and $692,000 of debt. It reports net income of $161,000. a. What is the firm's return on assets? (Enter your answer as a percent rounded to 2 decimal places.) Return on asset b. What is its return on stockholders' equity? (Enter your answer as a percent rounded to 2 decimal places.) Return on equity % c. If the firm has an asset turnover ratio of 1.8 times, what is the profit margin (return on sales)? (Enter your answer as a percent rounded to 2 decimal places.) Profit margin % Hints References eBook & Resources Hint Check my work 2019 McGraw-Hill Education. All rights reserved.

Answer 1

(a)-Return on assets

Return on assets = [Net Income / Total assets] x 100

= [$161,000 / $1,810,000] x 100

= 8.90%

(b)-Return on stockholders' equity

Return on stockholders' equity = [Net Income / Stockholders equity] x 100

= [Net Income / (Total Assets – Debt)] x 100

= [$161,000 / ($1,810,000 - $692,000)] x 100

= [$161,000 / $1,118,000] x 100

= 14.40%

(c)-Profit Margin

Total Sales = Total Assets x Asset Turnover

= $1,810,000 x 1.80 Times

= $3,258,000

Therefore, the Profit Margin = [Net Income / Sales] x 100

= [$161,000 / $3,258,000] x 100

= 4.94%