Question

A company had net income of $86,000 in Year 1 and $118,000 in Year 2. Its...

A company had net income of $86,000 in Year 1 and $118,000 in Year 2. Its net sales were $640,000 in Year 1 and $611,000 in Year 2. Its average total assets in Year 1 were $1,670,000 and $1,712,000 in Year 2. Calculate the profit margin, total asset turnover and return on total assets for both years. Comment on the results.

Homework Answers

Answer #1

1) Asset Turnover = Net sales / Average total asset

Year-1: 640,000 / 1,670,000 = 0.38 times

Year-2: 611,000 / 1,712,000 = 0.36 times

The higher asset turnover ratio indicates that the company is using the resources efficiently

2) Return on total assets = Net income / Average total assets

Year-1: 86,000 / 1,670,000 = 0.05 or 5.15%

Year-2: 118,000 / 1,712,000 = 0.07 or 6.89%

ROA's above 5% are usually are considered to be efficient

3) Profit margin = ROA / Asset Turnover

Year-1: 0.05 / 0.38 *100 = 13.16%

Year-2: 0.07 / 0.36 * 100 = 19.44%

The profit margin of 10% is considered to be average while the profit margin of nearly 20% is considered to be good

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Brief Exercise 11-10 In its 2017 annual report, Campbell Soup Company reports beginning-of-the-year total assets of...
Brief Exercise 11-10 In its 2017 annual report, Campbell Soup Company reports beginning-of-the-year total assets of $7,837 million, end-of-the-year total assets of $7,726 million, total sales of $7,890 million, and net income of $887 million. Compute Campbell’s asset turnover. (Round answer to 4 decimal places, e.g. 4.8726.) Asset turnover enter asset turnover in times rounded to 4 decimal places times LINK TO TEXT Compute Campbell’s profit margin on sales. (Round answer to 2 decimal places, e.g. 4.87%.) Profit margin on...
Crane Company reports the following information (in millions) during a recent year: net sales, $10,177.2; net...
Crane Company reports the following information (in millions) during a recent year: net sales, $10,177.2; net earnings, $246.7; total assets, ending, $5,130.0; and total assets, beginning, $5,150.0. (a) Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin. (Round answers to 1 decimal place, e.g. 6.2% and 6.2.) 1. Return on assets enter the return on assets in percentages rounded to 1 decimal places % 2. Asset turnover enter the asset turnover rounded to 1 decimal places...
Question 1 1a) A company has $1 billion of sales and $50 million of net income.  Its...
Question 1 1a) A company has $1 billion of sales and $50 million of net income.  Its total assets are $500 million, financed half by debt and half by common equity.  What is its profit margin?  What is its ROA? 4 Sales ($M) Net income ($M) Total assets ($M) Debt ratio Profit margin Sales ($M) Net income ($M) Total assets ($M) Debt ratio ROA 1b) A company has a profit margin of 6%, a total asset turnover ratio of 2, and an equity...
The Stars Company had net income in 2019 of AED 18 million. Here are some of...
The Stars Company had net income in 2019 of AED 18 million. Here are some of the financial ratios from the annual report. Profit Margin = 5% Return on Assets = 8% Debt Assets Ration = 45% Using these ratios, calculate the following for the Sun Company: a) Sales b) Total assets c) Total asset turnover d) Total debt e) Stockholders' equity f) Return on equity 2.A firm has sales of AED 500 million, and 10 percent of the sales...
QUESTION 11 What is return on assets? It is net income / total equity. It is...
QUESTION 11 What is return on assets? It is net income / total equity. It is sales / total assets. It is net income / total assets. It is sales / total equity. 1 points    QUESTION 12 Nvidia has the net profit margin of 32.20% while the industry average net profit margin is 13.51%. Based on the findings, Nvidia underperforms its peers in terms of leverage. Nvidia underperforms its peers in terms of profitability. Nvidia outperforms its peers in...
Calculate the Return on Assets (ROA) for the following company results: 2019 Net Sales $10,358,000 Net...
Calculate the Return on Assets (ROA) for the following company results: 2019 Net Sales $10,358,000 Net Income* 935,000 Average Total Assets 8,376,000 *Assume there are no non-recurring items or non-controlling interests 6. Net Profit Margin               __________________ /    ____________ = _____________ 7. Total Asset Turnover         __________________ /    ____________ = _____________ 8. Return on Assets (DuPont) __________________ X ____________ = _____________ 9. Compare & Interpret: a) To answer this question: “If the company expects a ROA of 14%, has the company met...
In its 2020 annual report, Headlands Limited reports beginning-of-the-year total assets of $2,308 million, end-of-the-year total...
In its 2020 annual report, Headlands Limited reports beginning-of-the-year total assets of $2,308 million, end-of-the-year total assets of $2,182 million, total revenue of $2,355 million, and net income of $150 million. Calculate Headlands's asset turnover ratio. (Round answer to 2 decimal places, e.g. 52.75.) Asset turnover ratio enter Asset turnover ratio in times times Link to Text Calculate Headlands's profit margin. (Round answer to 2 decimal places, e.g. 52.75%.) Profit margin enter Profit margin in percentages % Link to Text...
Wildhorse Co. reports the following information (in millions) during a recent year: net sales, $10,959.9; net...
Wildhorse Co. reports the following information (in millions) during a recent year: net sales, $10,959.9; net earnings, $429.8; total assets, ending, $5,070.0; and total assets, beginning, $5,675.0. (a) Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin. (Round answers to 1 decimal place, e.g. 6.2% and 6.2.) I need the following help. return on assets in % asset turnover   and profit margin
Travel Corp. has net income of $2 million, an effective tax rate of 35%, interest expense...
Travel Corp. has net income of $2 million, an effective tax rate of 35%, interest expense of $400,000, sales of $30 million, and $15 million in total assets, of which $5 million is debt. Use the DuPont system to calculate its ROE, decomposed into leverage ratio, asset turnover, profit margin, and debt burden. profit margin = ?? asset turnover = ?? equity multiplier = ?? return on equity = ??
Net income divided by average total assets is: Question 50 options: Profit margin. Total asset turnover....
Net income divided by average total assets is: Question 50 options: Profit margin. Total asset turnover. Return on total assets. Days' income in assets. Current ratio.