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Chapter 2: 29BP_c (page 84)

The Global Products Corporation has three subsidiaries.

Medical supplies

Heavy machinery

Electronics

Sales

\(20,040,000

\)5,980,000

$4,730,000

Net Income (after tax)

1,700,000

592,000

402,000

Assets

8,340,000

8,760,000

3,570,000

c. Compute the return on assets for the entire corporation.

Short Answer

Expert verified

The return on assets of the entire corporation is 13.03%.

Step by step solution

01

Return on assets

The return on assets is also termed as the financial ratio that shows how profitable a company is in relation to its total assets.

02

Return on assets for the entire corporation

Returnonassets=NetincomeAssets=$1,700,000+$592,000+$402,000$8,340,000+$8,760,000+$3,570,000=$2,694,000$20,670,000=13.03%

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Most popular questions from this chapter

Inflation can have significant effects on income statements and balance sheets, and therefore on the calculation of ratios. Discuss the possible impact of inflation on the following ratios, and explain the direction of the impact based on your assumptions.

a. Return on investment

Fondren Machine Tools has total assets of \(3,310,000 and current assets of \)879,000. It turns over its fixed assets 3.6 times per year. Its return on sales is 4.8 percent. It has $1,750,000 of debt. What is its return on stockholders’ equity?

Perez Corporation has the following financial data for the years 20X1 and 20X2:

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

a. Compute inventory turnover based on Ratio 6, Sales/Inventory, for each year.

What are the three primary sections of the statement of cash flows? In what section would the payment of a cash dividend be shown?

Lemon Auto Wholesalers had sales of \(1,000,000 last year, and cost of goods sold represented 78 percent of sales. Selling and administrative expenses were 12 percent of sales. Depreciation expense was \)11,000 and interest expense for the year was \(8,000. The firm’s tax rate is 30 percent.

a. Compute earnings after taxes.

b. Assume the firm hires Ms. Carr, an efficiency expert, as a consultant. She suggests that by increasing selling and administrative expenses to 14 percent of sales, sales can be increased to \)1,050,900. The extra sales effort will also reduce cost of goods sold to 74 percent of sales. (There will be a larger markup in prices as a result of more aggressive selling.) Depreciation expense will remain at \(11,000. However, more automobiles will have to be carried in inventory to satisfy customers, and interest expense will go up to \)15,800. The firm’s tax rate will remain at 30 percent. Compute revised earnings after taxes based on Ms. Carr’s suggestions for Lemon Auto Wholesalers. Will her ideas increase or decrease profitability?
See all solutions

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