Question

You are given the following information for Smashville, Inc.

Cost of goods sold:	$214,000
Investment income:	$2,200
Net sales:	$328,000
Operating expense:	$45,000
Interest expense:	$7,400
Dividends:	$8,000
Tax rate:	21	%

Current liabilities:	$16,000
Cash:	$21,000
Long-term debt:	$26,000
Other assets:	$38,000
Fixed assets:	$156,000
Other liabilities:	$5,000
Investments:	$42,000
Operating assets:	$35,000

  

Calculate the gross margin, the operating margin, return on assets and return on equity. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

gross margin = (sales - COGS) / sales

gross margin = ($328,000 - $214,000) / $328,000

gross margin = 34.76%

operating margin = (sales - COGS - operating expenses) / sales

operating margin = ($328,000 - $214,000 - $45,000) / $328,000

operating margin = 21.04%

ROA = net income / total assets

net income = (sales - COGS - operating expenses - interest) * (1 - tax rate) = ($328,000 - $214,000 - $45,000 - $7,400) * (1 - 21%) = $48,664

total assets = cash + other assets + fixed assets + investments + operating assets

total assets = $21,000 + $38,000 + $156,000 + $42,000 + $35,000 = $292,000

ROA = $48,664 / $292,000 = 16.67%

ROE = net income / equity

equity = total assets - long term debt - other liabilities = $292,000 - $26,000 - $5,000 = $261,000

ROE =  $48,664 / $261,000 = 18.65%