Question

5. Selected operating data for two divisions of Ashley Company are given below: NORTH SOUTH Sales 840,000 600,000 Total Assets Fixed Assets Total Liabilities Long-Term Liabilities Net income 360.000 140,000 120.000 80,000 72,000 400,000 150,000 150,000 50.000 48.000 Calculate ROA, ROE, Profit Margin and Fixed Assets Turnover for both the North and South divisions (2 points)

Answer 1

Answer:

For North Divisions:

ROA = Net Income / Total Assets *100
ROA = $72,000 / $360,000 * 100
ROA = 20%

Profit Margin = Net Income / Sales *100
Profit Margin = $72,000 / $840,000 * 100
Profit Margin = 8.57%

Fixed Assets Turnover = Sales / Fixed Assets
Fixed Assets Turnover = $840,000 / $140,000
Fixed Assets Turnover = 6 times

Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = $120,000 / $360,000
Debt Ratio =0.33

ROE =ROA / 1- debt ratio
ROE = 20 / 1-0.33
ROE = 20 / 0.67
ROE = 29.85%

For South Divisions:

ROA = Net Income / Total Assets *100
ROA = $48,000 / $400,000 * 100
ROA = 12%

Profit Margin = Net Income / Sales *100
Profit Margin = $48,000 / $600,000 * 100
Profit Margin = 8%

Fixed Assets Turnover = Sales / Fixed Assets
Fixed Assets Turnover = $600,000 / $150,000
Fixed Assets Turnover = 4 times

Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = $150,000 / $400,000
Debt Ratio =0.38

ROE =ROA / 1- debt ratio
ROE = 12 / 1-0.38
ROE = 12 / 0.62
ROE = 19.35%