Question

In: Finance

Griffey Junior Wear has $1,590,000 in assets and $684,000 of total debt. It reports net income...

Griffey Junior Wear has $1,590,000 in assets and $684,000 of total debt. It reports net income of $121,000.

a. What is its ROA? (Do not round intermediate calculations. Round the final answer to 1 decimal place.) Return on assets ?%

b. What is the return on shareholders’ equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Return on equity ?%

c. If the firm has an asset turnover ratio of 3.00 times, what is the profit margin? (Round the final answer to 2 decimal places.) Profit margin ?%

Expert Solution

Answer:

Information:

Total Assets:- $1,590,000

Total Debt- $684,000

Net Income:- $121,000

a. What is its ROA?

Introduction:

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. Return on assets is displayed as a percentage.

A company's return on assets (ROA) is calculated as the ratio of its net income in a given period to the total value of its assets

Formula:

Net Income- $ 121000

Total Assets:- $ $1,590,000

= $ 121000/$ 1,590,000

= 0.076 or 7.6%

What is the return on shareholders’ equity?

Introduction:

The return on shareholders' equity ratio shows how much money is returned to the owners as a percentage of the money they have invested or retained in the company. ... It is calculated by dividing a company's earnings after taxes (EAT) by the total shareholders' equity, and multiplying the result by 100%.

Share Holders Equity= Total Assets- Total Liabilities

=$1,590,000- $684,000

= $ 9,06,000

Return on Equity= Net Income/ Average Shareholders’ Equity

= $ 121000/ $ 9,06,000

= 0.13355 or 13.36 %

Profit margin ?

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin during the last quarter, it means that it had a net income of $0.35 for each dollar of sales generated.

There are several types of profit margin. In everyday use, however, it usually refers to net profit margin, a company’s bottom line after all other expenses, including taxes and one-off oddities, have been taken out of revenue.

The asset turnover ratio is calculated by dividing net sales by average total assets. Net sales, found on the income statement, are used to calculate this ratio returns and refunds must be backed out of total sales to measure the truly measure the firm's assets' ability to generate sales.

3= Net sales/ $ 1590000

Net Sales= $ 1590000*3

= $ 47,70,000

Profit margin ?

Gross profit margin is a metric used to assess a company's financial health and business model by revealing the amount of money left over from sales after deducting the cost of goods sold. The gross profit margin is often expressed as a percentage of sales and may be called the gross margin ratio

To find the margin, divide gross profit by the revenue. To make the margin a percentage, multiply the result by 100. The margin is 25%. That means you keep 25% of your total revenue

Gross profit/Revenue

= $121,000/ $ 47,70,000

= 0.025 or 2.5%

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