Mangrich International is considering a significant expansion to its product lin

Question

Mangrich International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company's current offerings, but offer a complementary fit to its existing product line. Michael Powell, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Linda Huang, the company's CFO, has provided the following projections based on results with and without the new products.

Compute the company's return on assets ratio, profit margin ratio, and asset turnover ratio, both with and without the new product line. (Round answers to 2 decimal places, e.g. 0.25.)

Explanation / Answer

Return on Assets Ratio

= Net Income / Average Total Assets

Without New Product = $527,400 / $5,078,170 = 10.38%

With New Product = $1,275,260 / $15,293,460 = 8.34%

Profit Margin Ratio = Net Income / Sales

Without New Product = $527,400 /$11,164,460 = 4.72%

With New Product = $1,275,260 / $19,045,460 = 6.70%

Asset TurnOver Ratio = Sales / Average Total assets

Without New Product = $11,164,460 / $5,078,170 = 2.20

With New Product = $19,045,460 / $15,293,460 = 1.25

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