Question

You are given the following information for Smashville, Inc.

Cost of goods sold:	$169,000
Investment income:	$1,300
Net sales:	$282,000
Operating expense:	$44,000
Interest expense:	$7,400
Dividends:	$5,000
Tax rate:	21	%

Current liabilities:	$22,000
Cash:	$21,000
Long-term debt:	$92,000
Other assets:	$37,000
Fixed assets:	$120,000
Other liabilities:	$6,000
Investments:	$33,000
Operating assets:	$64,000

  

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

1. gross margin=gross profit/Net sales

gross profit=Net sales-cost of goods sold=282000-169000=113000

gross margin=113000/282000=40.07%

2. operating margin=operating profit/Net sales

operating profit=Gross profit-operating expesnes=113000-44000=69000

operating margin=69000/282000=24.47%

3. Net income=(Operating profit-Interest expenses+Investment income)*(1-tax rate)=(69000-7400+1300)*(1-21%)=49691

Total assets=Cash+Operating assets+other assets+Fixed assets+Investments=21000+64000+37000+120000+33000=275000

return on assets=Net income/Total assets=49691/275000=18.07%

4. Total assets=Total laibilities+Equity

Total laibilities=Current laibilities+Long term debt+other laibilities=22000+92000+6000=120000

Equity=Total assets-Total liabilities=275000-120000=155000

Return on Equity=Net income/Total equity=49691/155000=32.06%