From the data presented below, calculate the following ratios: a.rate of return
ID: 2816652 • Letter: F
Question
From the data presented below, calculate the following ratios:
a.rate of return on total assets
b.rate of return on common stockholders' equity
c.gross margin Ratio/ rate of return on net sales
Net income
$ 70,000
Total assets, January 1, 2011
500,000
Total liabilities, December 31, 2011
175,000
Net sales
900,000
Interest expense
20,000
Current assets, December 31, 2011
150,000
Current liabilities, December 31, 2011
75,000
Income tax expense
25,000
Total assets, December 31, 2011
575,000
Stockholders' equity, January 1, 2011
300,000
Stockholders' equity, December 31, 2011
400,000
Common share outstanding for 2011
100,000
Net income
$ 70,000
Total assets, January 1, 2011
500,000
Total liabilities, December 31, 2011
175,000
Net sales
900,000
Interest expense
20,000
Current assets, December 31, 2011
150,000
Current liabilities, December 31, 2011
75,000
Income tax expense
25,000
Total assets, December 31, 2011
575,000
Stockholders' equity, January 1, 2011
300,000
Stockholders' equity, December 31, 2011
400,000
Common share outstanding for 2011
100,000
Explanation / Answer
5Solution:
a) Rate of Return on Total Assets = Net Income / Average Assets *100
Rate of Return on Total Assets = $70,000/ ($5,00,000+$5,75,000)/2 * 100
Rate of Return on Total Assets = $70,000/$5,37,500*100
Rate of Return on Total Assets = 13.02%
b) Rate of Return on Common Shareholders Equity=
Net Income / Average Common Shareholders Equity * 100
$70,000/ ($3,00,000 + $4,00,000)/2*100= 70000/350000*100
Rate of Return on Common Shareholders Equity= 20%
c) Gross Margin / Rate of Return on net sales= Net Income / Net Sales *100
= $70,000/$9,00,000*100= 7.78%
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