Question

Profitability Metrics

East Point, Inc., sells merchandise through company-owned retail stores and Internet Web sites. Recent financial information for East Point is provided below (all numbers in millions).

	Year 3		Year 2
Net income	$135,700		$69,900
Interest expense	2,800		10,400
	Year 3		Year 2		Year 1
Total assets	$1,631,753		$1,552,155		$1,367,845
Total stockholders' equity	945,221		926,503		576,723

a. Determine the return on total assets for East Point for the fiscal Years 2 and 3. Round your percentage answers to one decimal place.

Year 3	%
Year 2	%

b. Determine the return on stockholders' equity for East Point for the fiscal Years 2 and 3. Round your percentage answers to one decimal place.

Year 3	%
Year 2	%

Answer 1

A]  While calculating return on total assets [ ROA ]we should consider EBIT that is earnings Before Interest and Taxes. Net income is the income after deducting Interest expenses. Therefore for our calculation we should add back interest expenses

B ] Return on stockholders equity is calculation of such returns or net income in which preference dividend is also deducted. This net income is completely belongs to Stockholders. Since in the question there is no details regarding preference dividend we can consider net income for our calculations.