Chapter 2: 16BP_a (page 80)

Jerry Rice and Grain Stores has $4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has $123,000 in current liabilities and $349,000 in long-term liabilities.
a. What is its return on stockholders’ equity?

Short Answer

Expert verified

The return on the stockholder’s equity is 16.57%.

Step by step solution

Net Income

$\begin{array}{rcl} Net income & = & Sales \times Profit margin \\ = & $ 4, 780, 000 \times 4.5 % \\ = & $ 215, 100 \end{array}$

Total assets

$\begin{array}{rcl} Average total asset & = & \frac{Net sales}{Total asset turnover ratio} \\ = & \frac{$ 4, 780, 000}{2.7} \\ = & $ 1, 770, 370 \end{array}$

Shareholder’s equity

$\begin{array}{rcl} Shareholder' s equity & = & Total asset - Current liability - Long term liabilities \\ = & $ 1, 770, 370 - $ 123, 000 - $ 349, 000 \\ = & $ 1, 298, 370 \end{array}$

Return on equity

$\begin{array}{rcl} Return on shareholder' s equity & = & \frac{Net income}{Shareholder' s equity} \\ = & \frac{$ 215, 100}{$ 1, 298, 370} \\ = & 16.57 % \end{array}$

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

	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

	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

	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

Jerry Rice and Grain Stores has \(4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has \)123,000 in current liabilities and $349,000 in long-term liabilities.
a. What is its return on stockholders’ equity?

Short Answer

Step by step solution

Net Income

Total assets

Shareholder’s equity

Return on equity

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Managers

Business Development

Operational Management

Organizational Behavior

Human Resources

Business Operations

Study anywhere. Anytime. Across all devices.

Jerry Rice and Grain Stores has \(4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has \)123,000 in current liabilities and $349,000 in long-term liabilities.a. What is its return on stockholders’ equity?

Short Answer

Step by step solution

Net Income

Total assets

Shareholder’s equity

Return on equity

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Managers

Business Development

Operational Management

Organizational Behavior

Human Resources

Business Operations

Study anywhere. Anytime. Across all devices.

Jerry Rice and Grain Stores has \(4,780,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 2.7 times per year. It has \)123,000 in current liabilities and $349,000 in long-term liabilities.
a. What is its return on stockholders’ equity?