Here
and Gone, Inc., has sales of $18.1 million, total assets of $13.1
million, and total debt of $3.9 million. Assume the profit margin is 9
percent.
| Requirement 1: |
What is net income? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)
|
| Net income | $ |
| Requirement 2: |
What is ROA? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
|
| ROA | % |
| Requirement 3: |
What is ROE? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)
|
| ROE | % |
Explanation:
1.
2.
3.
To
find the return on assets and return on equity, we need net income. We
can calculate the net income using the profit margin. Doing so, we find
the net income is:
|
| Profit margin | = | Net income / Sales |
| 0.09 | = | Net income / $18,100,000 |
| Net income | = | $1,629,000 |
2.
| Now we can calculate the return on assets as: |
| ROA | = | Net income / Total assets |
| ROA | = | $1,629,000 / $13,100,000 |
| ROA | = | 0.1244 or 12.44% |
3.
We
do not have the equity for the company, but we know that equity must be
equal to total assets minus total debt, so the ROE is:
|
| ROE | = | Net income / (Total assets – Total debt) |
| ROE | = | $1,629,000 / ($13,100,000 – 3,900,000) |
| ROE | = | 0.1771 or 17.71% |
