Question

Omni Technology Holding Company has the following three affiliates:

	Software			Personal Computers			Foreign Operations
Sales	$	40,450,000		$	60,930,000		$	180,260,000
Net income (after taxes)		2,096,000			2,170,000			8,600,000
Assets		5,410,000			25,740,000			60,730,000
Stockholders' equity		4,090,000			10,390,000			50,750,000

     
a-1. Compute the return on sales.

Which affiliate has the highest return on sales?
  

• Foreign Operations

• Software

• Personal Computer

b-1. Compute the return on assets. (Input your answers as a percent rounded to 2 decimal places.)

b-2. Which affiliate has the lowest return on assets?
  

• Personal Computer

• Software

• Foreign Operations

c-1. Compute the total asset turnover. (Round your answers to 2 decimal places.)
  

c-2. Which affiliate has the highest total asset turnover?
  

• Software

• Personal Computers

• Foreign Operations

d-1. Compute the return on stockholders' equity. (Input your answers as a percent rounded to 2 decimal places.)
  

d-2. Which affiliate has the highest return on stockholders' equity?
  

• Personal Computers

• Foreign Operations

• Software

e-1. Compute the debt ratio. (Input your answers as a percent rounded to 2 decimal places.)
  

e-2. Which affiliate has the highest debt ratio?
  

• Foreign Operations

• Software

• Personal Computer

Answer 1

Answer a.

Software:

Return on Sales = Net Income / Sales
Return on Sales = $2,096,000 / $40,450,000
Return on Sales = 5.18%

Personal Computers:

Return on Sales = Net Income / Sales
Return on Sales = $2,170,000 / $60,930,000
Return on Sales = 3.56%

Foreign Operations:

Return on Sales = Net Income / Sales
Return on Sales = $8,600,000 / $180,260,000
Return on Sales = 4.77%

Software has the highest return on sales.

Answer b.

Software:

Return on Assets = Net Income / Assets
Return on Assets = $2,096,000 / $5,410,000
Return on Assets = 38.74%

Personal Computers:

Return on Assets = Net Income / Assets
Return on Assets = $2,170,000 / $25,740,000
Return on Assets = 8.43%

Foreign Operations:

Return on Assets = Net Income / Assets
Return on Assets = $8,600,000 / $60,730,000
Return on Assets = 14.16%

Software has the highest return on assets.

Answer c.

Software:

Total Asset Turnover = Sales / Assets
Total Asset Turnover = $40,450,000 / $5,410,000
Total Asset Turnover = 7.48

Personal Computers:

Total Asset Turnover = Sales / Assets
Total Asset Turnover = $60,930,000 / $25,740,000
Total Asset Turnover = 2.37

Foreign Operations:

Total Asset Turnover = Sales / Assets
Total Asset Turnover = $180,260,000 / $60,730,000
Total Asset Turnover = 2.97

Software has the highest total asset turnover.

Answer d.

Software:

Return on Stockholders’ Equity = Net Income / Stockholders’ Equity
Return on Stockholders’ Equity = $2,096,000 / $4,090,000
Return on Stockholders’ Equity = 51.25%

Personal Computers:

Return on Stockholders’ Equity = Net Income / Stockholders’ Equity
Return on Stockholders’ Equity = $2,096,000 / $10,390,000
Return on Stockholders’ Equity = 20.89%

Foreign Operations:

Return on Stockholders’ Equity = Net Income / Stockholders’ Equity
Return on Stockholders’ Equity = $2,096,000 / $50,750,000
Return on Stockholders’ Equity = 16.95%

Software has the highest return on stockholders’ equity.

Answer e.

Software:

Debt Ratio = (Assets - Stockholders' Equity) / Assets
Debt Ratio = ($5,410,000 - $4,090,000) / $5,410,000
Debt Ratio = 24.40%

Personal Computers:

Debt Ratio = (Assets - Stockholders' Equity) / Assets
Debt Ratio = ($25,740,000 - $10,390,000) / $25,740,000
Debt Ratio = 59.63%

Foreign Operations:

Debt Ratio = (Assets - Stockholders' Equity) / Assets
Debt Ratio = ($60,730,000 - $50,750,000) / $50,750,000
Debt Ratio = 16.43%

Personal Computers has the highest return on debt ratio.