Question

Problem 7-9A Calculate and interpret ratios (LO7-7) [The following information applies to the questions displayed below.] Sub Station and Planet Sub reported the following selected financial data ($ in thousands). Sub Station's business strategy is to sell the best tasting sandwich with the highest quality ingredients. Planet Sub's business strategy is to sell the lowest cost sub on the planet. Sub Station Planet Sub Net sales $108, 349 26,e22 75,283 116,571 $62,171 3,592 38,699 44,733 Net income Total assets, beginning Total assets, ending Problem 7-9A Part 1 Required: 1. Calculate Sub Station's return on assets, profit margin, and asset turnover ratio. (Enter your answers in thousands of dollars. (i.e. 123,000 should be entered as 123).) Return on Assets Choose Denominator Return on Assets Choose Numerator Return on assets Profit Margin Profit Margin Choose Numerator Choose Denominator Profit Margin Asset Turnover Asset Turnover Choose Denominator Choose Numerator Asset Turnover times Next> <Prev 7 of 11

Answer 1

Return on assets = net income/average assets

Sub station = 26022/95,927

= 27.13%

Planet Sub = 3592/41716

= 8.61%

Profit margin = net income/sales

Sub station = 26022/108349

= 24.02%

Planet sub = 3592/62171 = 5.78%

Asset turnover = sales/average assets

Sub station = 108349/95927 = 1.13 times

Planet sub = 62171/41716 = 1.49 times

Sub station has higher profit margin

Planet sub has higher asset turnover

Yes