Question

In response to complaints about high prices, a grocery chain runs the following advertising campaign: “If you pay your child $1 to go buy $31 worth of groceries, then your child makes about twice as much on the trip as we do.” You’ve collected the following information from the grocery chain’s financial statements:

(millions)
Sales	$	770.00
Net income		12.25
Total assets		360.00
Total debt		156.50

What is the child’s profit margin? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Child’s profit margin _____ %
  
What is the store’s profit margin? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Store’s profit margin _____ %
  
What is the store's ROE? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
ROE ______% ?

Answer 1

Answer to Part 1.

Profit Margin = Net Income / Sales * 100
Child’s Profit Margin = $1/ $31 * 100
Child’s Profit Margin = 3.23%

Answer to Part 2.

Profit Margin = Net Income / Sales * 100
Store’s Profit Margin = $12.25 / $770.00 * 100
Store’s Profit Margin = 1.59%

Answer to Part 3.

Total Assets = Total Debt + Total Equity
$360.00 = $156.50 + Total Equity
Total Equity = $203.50

ROE = Net Income / Total Equity * 100
ROE = $12.25 / $203.50 * 100
ROE = 6.02%