Question

Brief Exercise 4-17 (Algo) Profitability ratios (LO4-10] The 2021 income statement for Anderson TV and Appliance reported net sales of $260,000 and net income of $95,000. Average total assets for 2021 was $650,000. Shareholders' equity at the beginning of the year was $350,000 and $40,000 was paid to shareholders as dividends. There were no other shareholders' equity transactions that occurred during the year. Show the DuPont framework's calculation of the three components of the 2021 return on equity for Anderson TV and Appliance. X Answer is complete but not entirely correct. Choose Numerator: Net income 95,000 Profit Margin (%) Choose Denominator: Net sales 260,000 Profit Margin Profit Margin I 36.54% Choose Numerator: Net sales $ 260,000 Asset Turnover Choose Denominator: Average total assets 650,000 Return on Assets Asset turnover 1 = = 0.400 times Choose Numerator: Average total total assets $ 650,000 Equity Multiplier Choose Denominator: Average shareholders' equity $ 377,500 Return on Equity Equity multiplier = = 1.72 times Return on equity 25.00% X

Answer 1

Solution:

Return of activity = Profit margin * Asset Turnover * Equity multiplier

= 36.54% * 0.400*1.72

= 25.14%