Question

Stroud Sporting Gear Inc. has a net profit margin of 9%, a total asset turnover of...

Stroud Sporting Gear Inc. has a net profit margin of 9%, a total asset turnover of 2.4, total assets of $225 million, and total equity of $120 million. What is the company’s return on equity?

Homework Answers

Answer #1
Solution:
Company’s return on equity 40.50 %
Working Notes:
Total asset turnover = 2.4
Net sales /Total assets = 2.4
Net sales /$225 million = 2.4
Net Sales = 2.4 x $225 million
Net Sales = $540 million
Net Income = Net sales x Net profit margin
Net Income = $540 million x 9%
Net Income = $48.6 million
Company’s return on equity =Net income /Total Equity
Company’s return on equity =$48.6 million /$120 million
Company’s return on equity =0.4050
Company’s return on equity =40.50 %
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