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30 September, 21:30

The income statement for Stretch-Tape Corporation reports net sales of $540,000 and net income of $65,700. Average total assets for the year are $900,000. Stockholders' equity at the beginning of the year was $600,000, and $30,000 was paid to stockholders as dividends during the year. There were no other stockholders' equity transactions that occurred during the year. Required:Calculate the return on assets, profit margin, asset turnover, and return on equity ratios.

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  1. 30 September, 21:54
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    7.3%; 12.17%; 0.6 times; 15.95%

    Explanation:

    Return on assets:

    = Net Income : Average total assets

    = ($65,700 : $900,000) * 100

    = 7.3%

    Profit Margin:

    = Net Income : Net Sales

    = ($65,700 : $540,000) * 100

    = 12.17%

    Asset Turnover:

    = Net Sales : Average Total Assets

    = $540,000 : $900,000

    = 0.6 times

    Return on Equity:

    = Net Income before dividend : Equity

    = [ ($65,700 + $30,000) : $600,000] * 100

    = ($95,700 : $600,000] * 100

    = 15.95%
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