Question

There is a company that has a net profit margin of 5.2% on sales of $51.9...

There is a company that has a net profit margin of 5.2% on sales of $51.9 million. It has book value of equity of $38.6 million and total book liabilities of $29.4 million.   EBIT is $8.0 million and taxes are $2.1 million. What is the ROE and ROA?

No Excel or Finance calculator please.

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Homework Answers

Answer #1

- Net Profit = Sales*Net profit Margin = $51.9 million*5.2%

Net Profit = $2.6988 million

Total Assets = Book value of equity + Total book liabilities

Total Assets = $38.6 million + $29.4 million

Total Assets = $68 million

- Return on Equity(ROE) = (Net profit/Book value of equity)*100

ROE = ($2.6988 million/$38.6 million)*100

ROE = 6.99%

- Return on Assets(ROA) = (Net profit/Total Assets)*100

ROA = ($2.6988 million/$68 million)*100

ROA = 3.97%

Note- This is the only way it can be calculated using financial calculator

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