Question

S&J Plumbing, Incorporated's income statement shows a net profit before tax of $468 and net sales...

S&J Plumbing, Incorporated's income statement shows a net profit before tax of $468 and net sales of $7,482 for 2010. Total assets are at $3,244. The balance sheet lists the company’s equity for fiscal year ending 2010 as $1,746.


Calculate the following ratios for this company:


Return on sales ratio (net profit margin)


Return on assets (ROA)


Return on equity (ROE)


Write a paper of 2-3 pages about the efficiency of S&J Plumbing, Inc.


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Homework Answers

Answer #1

Return on sales = Net profit/ sales = 468/7482 =6.25%

Return on Asset = Net profit/ asset = 468/3244=14.43%

Return on Equity= Net profit/ Equity= 468/1746=26.8%

Efficiency of any firm can be measure by all the 3 parameters calculated above.

Any firm can adopt two strategy either price leadership or product differenciation. In case of cost leadership companies keep ROS low and ROA high while in product differentiation they keep high margin ROS but lower ROA. In S&J plumbing, company has lower margin but higher ROA that means company is following cost leadership strategy.

The performance of any company is measured by Return on equity that means how they are able to generate profit for their shareholders. We can see in this company ROE is almost 27% which is much more than the top industries. so overall company is doing well in managing its business.

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