Question

Squidward Tentacles, the financial analyst reporting to the chief financial officer of Alufab Aluminum Company, is comparing the performance of the company’s four separate divisions based on profit margin and return on assets. The relevant figures follow (figures in $000)

	Mining	smelting	rolling	extrusion
Net Income	$ 500	$ 2,600	$ 7,000	$ 2,500
Sales	15,000	30,000	60,000	25,000
Total Assets	12,000	25,000	39,000	18,000

a. Compare profit margin ratios of the four divisions.

b. Compare return on assets ratios of the four divisions.

c. Compute profit margin of the entire company.

d. Compute return on assets of the entire company.

Answer 1

		Mining	Smelting	Rolling	Extrusion	COMPANY
Net income		500	2600	7000	2500	12600
sales		15000	30000	60000	25000	130000
Total assets		12000	25000	39000	18000	94000
Profit Margin %		3.33%	8.67%	11.67%	10.00%	9.69%
(Net Income / sales)
Assets turnover		1.25	1.2	1.54	1.39	1.38
(sales / Total assets)
Return on Assets		4.16%	10.40%	17.97%	13.90%	13.37%
(Profit Margin * Assets turnover)