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? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

Net income

$

Requirement 2:

What is ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded 2 decimal places (e.g., 32.16).)

ROA

%

Requirement 3:

What is ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

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%