Based on the class text book- Principles of Managerial Finance by Gitman & Zutte

Question

Based on the class text book- Principles of Managerial Finance by Gitman & Zutter Chapter 3-Financial Statements and Ratio Analysis and other additional readings,uSolve the following problem on Financial Ratios. From the data presented below, calculate the following ratios a.rate of return on total assets b.rate of return on common stockholders' equity cgross marain Ratio/ rate of return on net sales Net income Total assets, January 1, 2011 Total liabilities, December 31, 2011 Net sales Interest expense Current assets, December 31, 2011 Current liabilities, December 31, 2011 Income tax expense Total assets, December 31, 2011 Stockholders' equity, January 1, 2011 Stockholders' equity, December 31, 2011 400,000 Common share outstanding for 2011 $ 70,000 500,000 175,000 900,000 20,000 150,000 75,000 25,000 575,000 300,000 100,000 Submit this assignment following the link provided in Module Two for the assignment

Explanation / Answer

rate of returrn on total asset = Net income/ average total asset

=70000 * 2 / (150000+ 575000) = 19.31%

rate of return on common stockholders equity = (Net inocme - preferred dividend)/average total common stockholders equity

= (70000 - 0) * 2/(300000 + 400000) = 20%

Return on sales = operating profit/ net sales

= (70000 + 20000 + 25000)/900000 = 12.78%

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