Please show formulas and work! The Dayco Manufacturing Company had the following

Question

Please show formulas and work!

The Dayco Manufacturing Company had the following financial statement results for the last year. Net sales were $1.2 million with net income of $90,000. Total assets at year end amounted to $900,000.
a. Calculate Dayco's asset turnover ratio and its profit margin.
b. Show how the two ratio in Part (a) can be used to determine Dayco's rate of return on assets.
c. Dayco operates industry average ratios are these: Return on assets: 11 percent; Asset turnover: 2.5 time; Net profit margin: 3.6 percent. Compare Dayco's performance against the industry averages.

Explanation / Answer

a. Total asset turnover = Sales/TA = 1,200,000/$900,000 = 1.333 Profit margin = Net income/Sales = $90,000/$1,200,000 = 0.075 or 7.5% b. ROA = Profit margin × Total asset turnover = 7.5% × 1.333 = 10.00% ROA = Net income/Total assets = $90,000/$900,000 = 0.10 or 10% c.Dayco had a higher profit margin, but a lower asset turnover. The net result on ROA wasthat Dayco’s return on assets was slightly above that of the industry.

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