Chapter 2: 11BP b (page 79)

Baker Oats had an asset turnover of 1.6 times per year.
b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?

Short Answer

Expert verified

The return on the total assets of the company is 11.2%. It is the same in both the year.

Step by step solution

Total assets

The company’s total assets mean the aggregate of current assets and the company’s non-current assets. It can also be termed as the total resources of the company.

Return on total assets of the company

$R e t u r n o n t o t a l a s s e t s = P r o f i t m a r g i n \times A s s e t t u r n o v e r r a t i o = 8 % \times 1.4 = 11.2 %$

The rate of return on the total assets of the company before the changes is 11.2%. Hence, there is no effect of changes on the return on the company's total assets.

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Taxes	Earning per share
Share Outstanding	Earning before taxes
Interest Expense	Cost of goods sold
Depreciation Expense	Earning after taxes
Preferred Stcok dividends	Earning available to common stockholders
Sales	Selling and administrative expense
Gross profit

Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

Times mirror and glass company
Sales	\)126,000
Less: Cost of goods sold	93,000
Gross profit	\(33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\)18,000
Less: Interest expenses	3,000
Earning before taxes	\(15,000
Less: Taxes (30%)	4,500
Earning after taxes	\)10,500

	20X1	20X2
Sales	\(8,000,000	\)10,000,000
Cost of goods sold	6,000,000	9,000,000
Inventory	800,000	1,000,000

Baker Oats had an asset turnover of 1.6 times per year.
b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?

Short Answer

Step by step solution

Total assets

Return on total assets of the company

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Influences On Business

Operational Management

Corporate Finance

Change Management

Organizational Behavior

Nature of Business

Study anywhere. Anytime. Across all devices.

Baker Oats had an asset turnover of 1.6 times per year.b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?

Short Answer

Step by step solution

Total assets

Return on total assets of the company

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Influences On Business

Operational Management

Corporate Finance

Change Management

Organizational Behavior

Nature of Business

Study anywhere. Anytime. Across all devices.

Baker Oats had an asset turnover of 1.6 times per year.
b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?