Question

Exercise 4-27 (Algo) Profitability ratios (L04-10] The following condensed information was reported by Peabody Toys, Inc. for 2021 and 2020 in thousands 2020 $6.100 $ 2.100 468 940 2.400 Income statement instien Net sales Net income Balance sheet information Current asset Property, plant, and equipment (net Total assets Current liabilities Long-te liabilities Common stock Retained anings Liabilicies and shareholders' equity $ 990 2010 $ 3.800 $2,160 .400 1.870 200 400 $3,800 $ 3.400 Required: 1. Determine the following ratios for 2021: (Round your percentage answers to decimal place. 2. Determine the amount of dividends paid to shareholders during 2021 (Enter your answer in whole collars and not in thousands . Profit margin on sales Return on assets Retum on equity Dividends paid

Answer 1

1 a .Profit margin on sales = net income / net sales * 100

=$468/$7,100*100

= 6.6%

1 b. Return on assets = net income / total asset *100

= $468/$3,800*100

=12.3%

1 c . Return on equity= net income / total shareholder's equity *100

= $468/$(300+400)*100

= $468/$700*100

=66.9%

2. Dividend = opening retained earning +net income for the year - closing retained earning

=$(290+468-400)

=$358

Note ÷

1. For calculating Return on asset , average total assets can be used in place of total asset

Avg total asset= ( last year total asset+ current total asset)/2

2. For calculating return on equity , average shareholder's equity can be used in place of total shareholder's equity.

Avg stakeholders equity = (opening balance +closing balance)/2