Easter Egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt.

Question

Easter Egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt. It reports net income of $200,000.      

What is the firm’s return on assets? (Enter your answer as a percent rounded to 2 decimal places.)

What is its return on stockholders’ equity? (Enter your answer as a percent rounded to 2 decimal places.)

If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales)? (Enter your answer as a percent rounded to 2 decimal places.)

What is the firm’s return on assets? (Enter your answer as a percent rounded to 2 decimal places.)

Explanation / Answer

1. Return on assets = Net Income / Total assets

= 200000/2000000 = 0.1 = 10%

2. Return on equity = Net Income / Shareholder's equity

Shareholder's equity value is not provided.

3. Asset turnover ratio = Total Revenue / Total Assets

Total Revenue = 2.5 * 2000000 = 5000000

Profit margin = Net income / Total Revenue = 200000 / 5000000 = 0.04 = 4%

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