Keller Cosmetics maintains an operating profit margin of 8.45% and a sales-to-as
ID: 2769553 • Letter: K
Question
Keller Cosmetics maintains an operating profit margin of 8.45% and a sales-to-assets ratio of 3.80. It has assets of $590,000 and equity of $390,000. Interest payments are $39,000 and the tax rate is 40%.
a. What is the return on assets?
b. What is the return on equity?
Keller Cosmetics maintains an operating profit margin of 8.45% and a sales-to-assets ratio of 3.80. It has assets of $590,000 and equity of $390,000. Interest payments are $39,000 and the tax rate is 40%.
a. What is the return on assets?
b. What is the return on equity?
Explanation / Answer
Operating Profit margin = operating profit/ Sales =8.45%
Assets = 590000
Equity =390000
Liabilities =20,0,000
ROA = net Income /Assets
Sales to assets = 3.8
Sales = 3.8*590,000 =
2242000
Operating Profit = .0845*2242000= 189449
Operating Profit - Interst =189449-3900 =14
Net Income =189449 -39000=150449
Hence ROA = Net Income/ Assets = 25.49%
Return on Equity =Net Income/ Equity =150449/390000= 38.57%
2242000
Operating Profit = .0845*2242000= 189449
Operating Profit - Interst =189449-3900 =14
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