Question

Selected data from the Carmen Company at year end are presented below: ​

Total assets	$2,000,000
Average total assets	2,200,000
Net income	250,000
Sales	1,300,000
Average common stockholders' equity	1,000,000
Net cash provided by operating activities	275,000
Shares of common stock outstanding	10,000
Long-term investments	400,000

Calculate: (a) asset turnover ratio; (b) return on total assets; (c) return on common stockholders' equity; and (d) earnings per share on common stock. Assume the company had no preferred stock or interest expense. Round dollar values to two decimal places and other final answers to one decimal place.

Answer 1

(a) asset turnover ratio;

= Net sales /Average total assets

=1,300,000/ 2200,000

=59.1%

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(b) return on total assets;

=(Net income + Interest expense) Average total assets

=($250,000 + 0) /$2,200,000

=11.4%

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(c) return on common stockholders' equity;

= Net Income / Average common stockholder's equity
= $250,000 / $1,000,000

=25%

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(d) earnings per share on common stock.

= Net Income / Share of common stock outstanding
= $250,000 / 10,000

= $25 per share

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asset turnover ratio	59.1%
return on total assets	11.4%
return on common stockholders' equity	25%
earnings per share on common stock.	25