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The comparative financial statements for Prince Company are below:

	Year 2				Year 1
Income statement:
Sales revenue	$	212,000			$	172,500
Cost of goods sold		117,500				102,200
Gross profit		94,500				70,300
Operating expenses and interest expense		58,200				54,100
Pretax income		36,300				16,200
Income tax		10,200				5,100
Net income	$	26,100			$	11,100
Balance sheet:
Cash	$	6,200			$	8,100
Accounts receivable (net)		15,100				19,100
Inventory		42,200				38,400
Property and equipment (net)		48,300				40,200
Total assets	$	111,800			$	105,800
Current liabilities (no interest)	$	17,100			$	18,100
Long-term liabilities (12% interest)		46,100				46,100
Common stock ($5 par value, 7,100 shares outstanding)		35,500				35,500
Retained earnings		13,100				6,100
Total liabilities and stockholders' equity	$	111,800			$	105,800

2. Compute the two components of ROA (total asset turnover and net profit margin) for Year 2. (Round your answers to 2 decimal places.)

Answer 1

ROA is the rate of return received or the profit generated by utilization of company's assets.

Sales of year 2 = $ 212,000

Net Income of year 2 = $ 26,100

Total Assets of year 2 = $ 111,800

These are the main components required to calculate the total asset turnover and net profit margin

Total Assets Turnover is the ratio which measures the efficiency of the use of assets by the company in generating total revenue

Total Assets Turnover is calculated as below

= Total Sales / Total Assets

= 212,000 / 111,800

= 1.90 Times

Assets Turnover ratio is always indicated in times. So the total assets turnover for year 2 is 1.90 times.

Net profit margin is the measure of the total profit generated by the company as against its total revenue

Net Profit margin is calculated as below

= (Net Income / Sales) * 100

= ( 26,100 / 212,000 ) * 100

= 12.31%

So, the Net profit margin for year 2 is 12.31%.

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