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Griffey Junior Wear has $1,590,000 in assets and $684,000 of total debt. It reports net income...

Griffey Junior Wear has $1,590,000 in assets and $684,000 of total debt. It reports net income of $121,000.

a. What is its ROA? (Do not round intermediate calculations. Round the final answer to 1 decimal place.) Return on assets ?%

b. What is the return on shareholders’ equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Return on equity ?%

c. If the firm has an asset turnover ratio of 3.00 times, what is the profit margin? (Round the final answer to 2 decimal places.) Profit margin ?%

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Answer #1

a. What is its ROA?

Return On Asset (ROA) = Net Income / Total Assets *100

= 121000/1590000 *100

= 7.6%

b. What is the return on shareholders’ equity?

Return On Shareholders’ Equity = Net Income / Shareholders’ Equity *100

= Net Income / ( Total Assets-Total Debt) *100

= 121000/(1590000-684000) *100

= 121000/906000 *100

= 13.36%

c. If the firm has an asset turnover ratio of 3.00 times, what is the profit margin?

Asset Turnover Ratio = Sales / Total Assets

3 = Sales/1590000

Sales = 3*1590000

= 4770000

Profit Margin = Net Income / Sales *100

= 121000/4770000 *100

= 2.54%

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