Question

Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation.  
  
a. Butters Corporation has a profit margin of 6 percent and its return on assets (investment) is 22.25 percent. What is its assets turnover? (Round your answer to 2 decimal places.)
  

  

b. If the Butters Corporation has a debt-to-total-assets ratio of 40.00 percent, what would the firm’s return on equity be? (Input your answer as a percent rounded to 2 decimal places.)
  

     

c. What would happen to return on equity if the debt-to-total-assets ratio decreased to 25.00 percent? (Input your answer as a percent rounded to 2 decimal places.)
  

The balance sheet for Stud Clothiers is shown next. Sales for the year were $3,200,000, with 75 percent of sales sold on credit.

STUD CLOTHIERS Balance Sheet 20X1
Assets			Liabilities and Equity
Cash	$	25,000	Accounts payable	$	247,000
Accounts receivable		351,000	Accrued taxes		97,000
Inventory		251,000	Bonds payable (long-term)		136,000
Plant and equipment		423,000	Common stock		100,000
			Paid-in capital		150,000
			Retained earnings		320,000
Total assets	$	1,050,000	Total liabilities and equity	$	1,050,000

Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.)

Answer 1