Question

ders ed (2) The following are extracted from the financial statemests of Frem, Inc. (10 points) Name sets asse ole as exp gs b Net sales Cost of sales Selling and administrative expenses Other income 2012 $235,000 (120,000) (90,0001) ired Tie Interest Earmings before tax Provision for income tax Net income (4,500) 20,500 (6,800) 13, 700 Total assets Long-term debt Common equity Preferred stock $200, 000 24, 600 153, 000 5, 000 300 Preferred dividends Required: Compute the following ratios for 2017 1. Net profit margin Total asset turnover 2. Return on assets 3. Return on total equity 4. Gross profit margin

Answer 1

Required 1 :
Net profit margin = Net income / Net sales = 13700 / 235000	5.83%
Required 2 :
Total asset turnover = Net sales / Total assets = 235000 / 200000	1.18
Required 3 :
Return on assets = Net income / Total assets = 13700 / 200000	6.85%
Required 4 :
Total equity = Common equity + Preferred stock = 153000 + 5000	158000
Return on total equity = Net income / Total equity = 13700 / 158000	8.67%
Required 5 :
Gross profit = Net sales - Cost of sales = 235000 - 120000	115000
Gross profit margin = Gross profit / Net sales = 115000 / 235000	48.94%
Note : In the absence of information regarding rounding off, all the answers are rounded off to 2 decimal places.