Question

Total assets are $13.7million, while sales are $18.7million, and total liabilities are $4.5 million. Profit margin equals 10%. |

Requirement 1: |

What is net income? |

Net income | $ |

Requirement 2: |

What is ROA? |

ROA | % |

Requirement 3: |

What is ROE? |

ROE | % |

References

eBook & Resources

Worksheet

Answer #1

Ans. 1 |
Profit margin is the percentage of net income on sales. | ||

Net income = Sales * Profit margin | |||

$18,700,000 * 10% | |||

$1,870,000 |
|||

Ans. 2 |
Return on assets (ROA) is the percentage of net income on total assets. | ||

Return on assets (ROA) = Net income / Total assets * 100 | |||

$1,870,000 / $13,700,000 * 100 | |||

13.65% |
|||

Ans. 3 |
Return on equity (ROE) is the percentage of net income on total equity. | ||

*Total equity = Total assets - Total liabilities | |||

$13,700,000 - $4,500,000 | |||

$9,200,000 | |||

Return on equity (ROE) = Net income / Total equity * 100 | |||

$1,870,000 / $9,200,000 * 100 | |||

20.33% |
|||

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