Bethesda Mining Company reports the following balance sheet information for 2013
ID: 2718498 • Letter: B
Question
Bethesda Mining Company reports the following balance sheet information for 2013 and 2014.
Suppose that the Bethesda Mining Company had sales of $2,336,873 and net income of $91,381 for the year ending December 31, 2014.
Calculate ROE using the Du Pont identity. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Enter the profit margin and return on equity as percents.)
BETHESDA MINING COMPANYBalance Sheets as of December 31, 2013 and 2014 2013 2014 2013 2014 Assets Liabilities and Owners’ Equity Current assets Current liabilities Cash $ 70,322 $ 88,509 Accounts payable $ 185,922 $ 193,611 Accounts receivable 66,281 86,639 Notes payable 81,020 132,588 Inventory 114,322 178,920 Total $ 266,942 $ 326,199 Total $ 250,925 $ 354,068 Long-term debt $ 229,000 $ 165,750 Owners’ equity Common stock and paid-in surplus $ 226,000 $ 226,000 Accumulated retained earnings 187,930 226,197 Fixed assets Net plant and equipment $ 658,947 $ 590,078 Total $ 413,930 $ 452,197 Total assets $ 909,872 $ 944,146 Total liabilities and owners’ equity $ 909,872 $ 944,146
Suppose that the Bethesda Mining Company had sales of $2,336,873 and net income of $91,381 for the year ending December 31, 2014.
Required:Calculate ROE using the Du Pont identity. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Enter the profit margin and return on equity as percents.)
Profit margin ????? % Total asset turnover ????? times Equity multiplier ???? times Return on equity ???? %Explanation / Answer
ROE = (net income / sales) * (sales / assets) * (assets / equity) If two companies have the same ROE, but the first is well managed (high net-profit margin) and managed assets efficiently (high asset turnover) but has a low equity multiplier compared to the other company, then an investor is better off investing in the first company, because the capital structure can be changed easily (increase use of debt), but changing management is difficult. 2014 Net income 91381 Sales 2336873 Profit margin is netincome/sales 3.910% Total asset turnover is sales/asset 2.475118255 times Equity multiplier is assets/equity 2.087908589 ROE AS PER FORMULA GIVEN ABOVE IS MULTIPLYING ABOVE 3 COMPONENTS:- 20.208%
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