Question

Financial statements for Askew Industries for 2018 are shown below (in $000’s): 2018 Income Statement Sales $ 8,700 Cost of goods sold (6,175 ) Gross profit 2,525 Operating expenses (1,875 ) Interest expense (150 ) Tax expense (200 ) Net income $ 300 Comparative Balance Sheets Dec. 31 2018 2017 Assets Cash $ 550 $ 450 Accounts receivable 550 350 Inventory 750 550 Property, plant, and equipment (net) 1,500 1,600 $ 3,350 $ 2,950 Liabilities and Shareholders’ Equity Current liabilities $ 800 $ 550 Bonds payable 1,150 1,150 Paid-in capital 550 550 Retained earnings 850 700 $ 3,350 $ 2,950 Required: Calculate the following ratios for 2018. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.) 5. Asset turnover ratio 6. Profit margin on sales 7. Return on Assets 8. Return on shareholders Equity 9. Equity multiplier 10. Return on Shareholders Equity ( using the Dupont framework)

Answer 1

Answer to Requirement 5.

Asset Turnover Ratio = Sales/ Average Total Assets

Average Total Assets = ($3,350 + $2,950)/ 2 = $3,150

Asset Turnover Ratio = $8,700/ $3,150

Asset Turnover Ratio = 2.76 times

Answer to Requirement 6.

Profit margin on Sales = Net Income/ Sales * 100

Profit Margin on Sales = $300/ $8,700 * 100

Profit Margin on Sales = 3.45%

Answer to Requirement 7.

Return on Assets = Net Income/ Average Total Assets * 100

Return on Assets = $300/ $3,150 * 100

Return on Assets = 9.52%

Answer to Requirement 8.

Return on Shareholders Equity = Net Income/ Average Stockholder's equity * 100

Average Stockholder's equity = [($550 + $850) + ($550 + $700)]/2

Average Stockholder's equity = $1,325

Return on Stockholder's equity = $300/ $1,325 * 100

Return on Stockholder's equity = 22.64%