Ferma Systems had total assets of $38.50 billion, total debt of $10.726 billion,

Question

Ferma Systems had total assets of $38.50 billion, total debt of $10.726 billion, and net salesof $24.05 billion. Their profit margin for the year was 18 percent, while the operating
profit margin was 28 percent. What was the firm’s ROA and ROE?
a.   11%; 16%   c.   12%; 18%
b.   14%; 20%   d.   10%; 15%

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Arantes Pharmaceuticals has reported the following information:
Sales/Total Assets = 2.89
ROA = 10.74%
ROE = 20.36%.
What is the firm’s profit margin and debt ratio?

a.   7.1%; 1.90   c.   3.7%; 0.47
b.   7.1%; 0.53   d.   3.7%; 1.90

Explanation / Answer

Answer:-1

Calculation of ROA (Return on Assets )

ROA = Net Profit / Total Assets

Net Profit = Net Sales * Profit Margin = $24.05 billion * 18% = $4.329 Billion

Hence ROA = 4.329 / 38.50

= 0.1124

=11.24% or Say 11%

Calculation of ROE (Return on Equity )

ROE = Net Profit / Equity

Equity = Total Assets – Debt = 38.5 -10.726 = $27.774 Billion

Hence ROE = 4.329 /27.774

=0.1559

=15.59% or Say 16%

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