1. Dental Delights has two divisions. Division A has a profit of $200,000 on sales of $4,000,000. Division B is only able to make $30,000 on sales of $480,000. Based on the profit margins(Return on sales), which division is superior?
Solution
Division A
Return on Sales = (Net income/Sales)
= $200,000/ $4,000,000
=0.05
Return on sales=5%
Division B
Return on Sales = (Net income/Sales)
= $30,000/ $480,000
Retuen on sales =6.25%
Division B is superior with higher Return on sales ratio.
2. Griffey Junior Wear Inc. has $800,000 in assets and $200,000 of debt. It reports net income of $100,000.
a. What is the return on assets?
b. What is the return on equity?
=0.125
=12.5%
Return on assets=12.5%
3. Bass Chemical Inc. is consideding expanding into a new product line. Assets to support this expansion will cost $1,200,000. Bass estimates that it can generate $2 million in annual sales, with a 5 percent profit margin. What would net income and return on assets.
Solution
Net Income = ?
Return on assets = ?
To find the Return on assets we need net income first. So we will find net income first.
Sales = $2 million = $2,000,000 [1 million = 1,000,000]
Profit Margin = 5% or 0.05
Profit Margin = (Net Income/Sales)
So
0.05 = (Net Income/2,000,000)
Net Income = 2,000,000*0.05
Net Income=$100,000
Return on assets = (Net Income/Total assets)*100
=(100,000/1,200,000)
=0.083
=8.33%
Return on assets = 8.33%
4. Franklin Mint and Candy Shop can open a new store that will do an annual sales volume of $750,000. It will turn over its assets 2.5 times per year. The profit margin on sales will be 6 percent. What would net income and return on assets(investment) be for the year?
Solution
Profit Margin = (Net Income/ Sales)
0.06 = (Net Income/750,000)
Net Income = $45,000
Return on assets = (Net Income/Total assets)
=>2.5 = (750,000/Total Assets)
=>Total assets = 0.15
Total Assets = 15%
5. Hugh Snore Bedding, Inc., has assets of $400,000 and turns over its assets 1.5 times per year. Return on assets 12 percent. What is its profit margin(return on sales)?
Solution
Asset Turnover = (Sales/Total assets)
1.5 = Sales/400,000
Sales = $600,000
Return on assets = Net Income/Total assets
0.12 = Net Income/ $400,000
Net Income = $48,000
Profit Margin = (Net Income/Sales)
Profit Margin = $48,000/$600,000
=0.08
Profit Margin = 8%
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Solution
Division A
Return on Sales = (Net income/Sales)
= $200,000/ $4,000,000
=0.05
Return on sales=5%
Division B
Return on Sales = (Net income/Sales)
= $30,000/ $480,000
Retuen on sales =6.25%
Division B is superior with higher Return on sales ratio.
2. Griffey Junior Wear Inc. has $800,000 in assets and $200,000 of debt. It reports net income of $100,000.
a. What is the return on assets?
b. What is the return on equity?
Solution
Return on assets = (Net income/Total assets)*100
=$100,000/$800,000=0.125
=12.5%
Return on assets=12.5%
3. Bass Chemical Inc. is consideding expanding into a new product line. Assets to support this expansion will cost $1,200,000. Bass estimates that it can generate $2 million in annual sales, with a 5 percent profit margin. What would net income and return on assets.
Solution
Net Income = ?
Return on assets = ?
To find the Return on assets we need net income first. So we will find net income first.
Sales = $2 million = $2,000,000 [1 million = 1,000,000]
Profit Margin = 5% or 0.05
Profit Margin = (Net Income/Sales)
So
0.05 = (Net Income/2,000,000)
Net Income = 2,000,000*0.05
Net Income=$100,000
Return on assets = (Net Income/Total assets)*100
=(100,000/1,200,000)
=0.083
=8.33%
Return on assets = 8.33%
4. Franklin Mint and Candy Shop can open a new store that will do an annual sales volume of $750,000. It will turn over its assets 2.5 times per year. The profit margin on sales will be 6 percent. What would net income and return on assets(investment) be for the year?
Solution
Profit Margin = (Net Income/ Sales)
0.06 = (Net Income/750,000)
Net Income = $45,000
Return on assets = (Net Income/Total assets)
=>2.5 = (750,000/Total Assets)
=>Total assets = 0.15
Total Assets = 15%
5. Hugh Snore Bedding, Inc., has assets of $400,000 and turns over its assets 1.5 times per year. Return on assets 12 percent. What is its profit margin(return on sales)?
Solution
Asset Turnover = (Sales/Total assets)
1.5 = Sales/400,000
Sales = $600,000
Return on assets = Net Income/Total assets
0.12 = Net Income/ $400,000
Net Income = $48,000
Profit Margin = (Net Income/Sales)
Profit Margin = $48,000/$600,000
=0.08
Profit Margin = 8%
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