Question

Total assets are $14.2million, while sales are $19.2million, and total liabilities are $5 million. Profit margin equals 10%.

Requirement 1:

What is net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

Net income

$

Requirement 2:

What is ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded 2 decimal places (e.g., 32.16).)

ROA

%

Requirement 3:

What is ROE? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

ROE

%

Answer 1

1) Profit margin = Net income / Sales

0.10 = Net income / $19,200,000

Net income = $1,920,000

2) ROA = Net income / Total assets

ROA = $1,920,000 / $14,200,000

ROA = 0.1352 or 13.52%

3) ROE = Net income / (Total assets – Total debt)

ROE = $1,920,000 / ($14,200,000 – $5,000,000)

ROE = 0.2087 or 20.87%