Question

Neutrocite inc., which obtained its position as the largest retailer of medical supplies in the past, are now reducing the company’s profitability and even threatening its survival. The problem is that many customers go to Neutrocite stores to see items but then buy them for less from online retailers.Suppose the following data were extracted from the 2022 and 2016 annual reports of Neutrocite. (All amounts are in millions.)

                                                             2022                   2021                2016                2015

Total assets at year end $17,849 $18,302 $11,864             $10,294

Net sales           50,272                           30,848           

Net income        1,277                 1,140

Using the data above, answer the following questions.

Compute the profit margin, asset turnover, and return on assets for 2022 and 2016.

Discuss the implications of the ratios calculated in parts (a).

Show all your work

Answer 1

Answer :

1. Profit margin = Net income / Net sales

2022

Profit margin = 1,277 / 50,272 = 2.54%

2016

Profit margin = 1,140 / 30,848 = 3.69%

Profitability of Neutrocite inc is decreased in Year 2022 from previous years.

2. Asset turnover ratio = Net Sales / Average total assets

2022

Average total assets = ($17,849 + $18,302) / 2 = $18,075.5

Asset turnover ratio = $50,272 / $18,075.5 = 2.78 times

2016

Average total assets = ($11,864 + $10,294) / 2 = $11,079

Asset turnover ratio = $30,848 / $11,079 = 2.78 times

There is no change in asset turnover of Neutrocite inc.

3. Return on assets = Net Income/ Average total assets

2022

Return on assets = $1,277 / $18,075.5 = 7.06%

2016

Return on assets = $1,140 / $11,079 = 10.29%

Return on assets of Neutrocite inc is decreased in Year 2022 from previous years.