1. Dogmatic Enterprises, Inc. has a net profit margin of 7% on sales of $80,000,

Question

1. Dogmatic Enterprises, Inc. has a net profit margin of 7% on sales of $80,000,000. Its Balance Sheet shows the value of Equity as $50,000,000 and the value of Liabilities as $30,000,000.

a. Calculate the firm’s Return on Assets (ROA) and Return on Equity (ROE)?

b. Discuss/explain what the ROA and the ROE measure.

2. National Bank, N.A. has 650,345,000 shares of common stock outstanding that are currently priced at $45 ¾ per share. The company’s Net Income is $3,750,800,000.

a. What are the bank’s earnings per share?

b. What is the bank’s price-to-earnings (P/E) ratio?

3. New Century Corp. has a gross profit margin of 31.4% on sales of $13,144,680 and EBIT of $2,586,150.

a. Calculate the company’s cost of goods.

b. What is the company’s operating profit margin?

4. VivaVita, Inc. is a specialty retailer with a net profit margin of 2.8%, a total asset turnover of 1.6, total assets of $35 million, and a book value of equity of $20 million. What is the firm’s Return on Equity (ROE)?

Explanation / Answer

Question 1:

Part A)

ROA = Net income / total assets

        = 80,000,000 x 7%/ (50,000,000+30,000,000)

       = 5600000/80,000,000

       = 7%

ROE = Net income / Equity

                = 5,600,000 / 50,000,000

                = 11.20%

Part B)

ROE measures the returns for stockholders only. It is the amount of return generated on stockholder’s equity. ROA measures return generated on total asset of the firm. It is the returns generated for the firm.

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