7. Use the following information to answer the questions Assets Cash Marketable

Question

7. Use the following information to answer the questions Assets Cash Marketable securities4,000 Notes payable Accounts receivable 8,000 Current liabilities 26,000 Inventory Liabilities and Equity 13,000 Accounts payable 18,000 8,000 25,000Long-term debt 50,000Total liabilities 42,000Paid-in capital 60,000Retained 102,000 Equity 152,000 | | Total liab. & equity 1 152,000 80,000 106,000 30,000 Current assets Machines Real estate Net fixed assets Total assets earnings 16,000 46,000 Line item Value 440,000 Sales Line item Value Depreciation EBIT Interest Taxable income Taxes Net income Operating expenses 352,000 25,000 63,000 8,000 55,000 18,150 36,850 a. What is the profit margin? b. What is total asset turnover? c. What is the equity multiplier? d. What is ROE?

Explanation / Answer

a.

Profit margin

= Net income / Sales

= 36850 / 440000

= 8.3750%

= 8.38%

b.

Total asset turnover ratio = Sales / Total Assets

= 440000 / 152000

= 2.8947

= 2.89 times

c.

Equity multiplier = Total assets / Equity

= 152000/46000

= 3.3043

= 3.30 times

d.

ROE = Net income / Equity

= Net Income / Equity

= 36850 / 46000

= 80.1087%

= 80.11%

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