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5 July, 15:50

Shown below are selected data from the financial statements of the Supreme Company. (Dollar amounts are in millions, except for the per share data).

Income statement dа ta:

$'000

Net sales $1,230

Cost of goods sold $520

Operating expenses $440

Net income $390

Balance sheet dа ta:

$'000

Average total equity $2,400

Average total assets $4,000

Supreme reported earnings per share for the year of $4 and paid cash dividends of $1 per share.

At year-end, the Wall Street Journal listed Supreme's capital stock as trading at $88 per share.

Required:

Compute the following:

a). Gross profit rate

b). Supreme's operating income (in millions)

c). Return on assets

d). Return on equity

e). Price-earning ratio

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Answers (1)
  1. 5 July, 15:57
    0
    a. Gross profit rate = Gross profit / sales

    = $710,000 * 100

    $1,230,000

    = 57.72%

    b. Supreme Operating Income

    Gross Profit $710,000

    Operating expenses (440,000)

    Operating Profit 270,000

    c. Return on Asset = Return / Average Asset

    = $390,000 * 100

    $4,000,000

    = 9.75%

    d. Return on equity = Return / Average equity

    = $390,000 * 100

    $2,400,000

    = 16.25%

    e. Price-earnings ratio = Market price per share / earnings per share

    = $88 / $4

    = 22

    Explanation:

    Computation of Gross profit

    $'000

    Net Sales 1,230

    Cost of goods sold (520)

    Gross Profit 710
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