Question

A. Use the following selected balance sheet and income statement data for Mattel Inc. (in $ thousands) to compute a) return on equity, b) profit margin (PM), c) asset turnover (AT), and d) financial leverage (FL) for fiscal 2016. Show that ROE = PM × AT × FL. (in thousands) 2016 2015 Net sales $5,456,650 $5,702,613 Operating income 619,233 640,922 Interest expense 95,118 85,270 Net income 318,022 369,416 Total assets 6,493,794 6,535,143 Total liabilities 4,086,012 3,901,889

Answer 1

Particulars		2016	2015
(a)	Total Assets	6493794	6535143
(b)	Total Liabilities	4086012	3901889
(c)	Stockholders Equity [(a) - (b)]	2407782	2633254
(d)	Average Stockholders Equity [(2407782+2633254)/2]	2520518
(e)	Average Assets [(6493794+6535143)/2]	6514469

Computation of Return on Equity

Return on Equity = Net Income/Average Stockholders Equity

Return on Equity = 318022/2520518

Return on Equity = 12.62% or 0.126173

Calculation of Profit Margin

Profit Margin = Net Income/net sales

Profit Margin = 318022/5456650

Profit Margin = 0.0582 or 5.82%

Calculation of Assets Turnover

Assets Turnover = Net Sales/Average Assets

Assets Turnover = 5456650/6514469

Assets Turnover = 0.83762 or 0.84

Calculation of Financial Leverage

Financial Leverage = Average Assets/Average stockholders Equity

Financial Leverage = 6514469/2520518

Financial Leverage = 2.5845

Proof:

Return on Equity = Profit Margin*Assets Turnover*Financial Leverage

Return on Equity = 0.0582*0.83762*2.5845

Return on Equity = 0.125993 or 0.1260