a. Calculate Keystone's return on stockholders' equity. Round your answer to two decimal places. % b. Industry average ratios are Net profit margin 8.5% Total asset turnover 2.1 times Equity multiplier 1.2 times Compare Keystone's net profit margin, total asset turnover, and equity multiplier to these averages. Round your answers to two decimal places.
a. Calculate Keystone's return on stockholders' equity. Round your answer to two decimal places. % b. Industry average ratios are Net profit margin 8.5% Total asset turnover 2.1 times Equity multiplier 1.2 times Compare Keystone's net profit margin, total asset turnover, and equity multiplier to these averages. Round your answers to two decimal places.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Keystone Resources Financial Analysis**
Keystone Resources has a net profit margin of 8 percent and earnings after taxes of $2.1 million. Its current balance sheet is as follows:
- **Assets**
- Current assets: $7,000,000
- Fixed assets: $11,000,000
- Total assets: $18,000,000
- **Liabilities and Stockholders' Equity**
- Current liabilities: $3,600,000
- Long-term debt: $5,500,000
- Common stock: $3,900,000
- Retained earnings: $5,000,000
- Total liabilities and stockholders’ equity: $18,000,000
---
**a. Return on Stockholders' Equity Calculation**
Calculate Keystone’s return on stockholders’ equity. Round your answer to two decimal places.
\[ \text{Return on Stockholders' Equity:} \ \_\_\_\_ \% \]
---
**b. Comparison with Industry Averages**
Industry average ratios are:
- Net profit margin: 8.5%
- Total asset turnover: 2.1 times
- Equity multiplier: 1.2 times
**Analysis:**
Compare Keystone's ratios to industry averages. Round your answers to two decimal places.
- Net profit margin of 8% is \[ \text{Select: higher/lower} \] than the industry average.
- Total asset turnover of \[ \_\_\_\_ \] times is \[ \text{Select: higher/lower} \] than the industry average.
- Equity multiplier of \[ \_\_\_\_ \] times is \[ \text{Select: higher/lower} \] than the industry average.
- Overall Keystone’s return on equity is \[ \_\_\_\_ \] than the industry average and its level of financial risk is \[ \text{Select: higher/lower} \].
---
**c. Quick Ratio Calculation**
Keystone has inventories of $3.1 million. Compute the firm’s quick ratio. Round your answer to two decimal places.
\[ \text{Quick Ratio:} \ \_\_\_\_ \ \text{times} \]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F80013af2-a9d6-4faf-ac7e-8d9850186109%2F78a7703d-722e-4a9b-92c8-bbd9337b9985%2Fw2ubvx_processed.png&w=3840&q=75)
Transcribed Image Text:**Keystone Resources Financial Analysis**
Keystone Resources has a net profit margin of 8 percent and earnings after taxes of $2.1 million. Its current balance sheet is as follows:
- **Assets**
- Current assets: $7,000,000
- Fixed assets: $11,000,000
- Total assets: $18,000,000
- **Liabilities and Stockholders' Equity**
- Current liabilities: $3,600,000
- Long-term debt: $5,500,000
- Common stock: $3,900,000
- Retained earnings: $5,000,000
- Total liabilities and stockholders’ equity: $18,000,000
---
**a. Return on Stockholders' Equity Calculation**
Calculate Keystone’s return on stockholders’ equity. Round your answer to two decimal places.
\[ \text{Return on Stockholders' Equity:} \ \_\_\_\_ \% \]
---
**b. Comparison with Industry Averages**
Industry average ratios are:
- Net profit margin: 8.5%
- Total asset turnover: 2.1 times
- Equity multiplier: 1.2 times
**Analysis:**
Compare Keystone's ratios to industry averages. Round your answers to two decimal places.
- Net profit margin of 8% is \[ \text{Select: higher/lower} \] than the industry average.
- Total asset turnover of \[ \_\_\_\_ \] times is \[ \text{Select: higher/lower} \] than the industry average.
- Equity multiplier of \[ \_\_\_\_ \] times is \[ \text{Select: higher/lower} \] than the industry average.
- Overall Keystone’s return on equity is \[ \_\_\_\_ \] than the industry average and its level of financial risk is \[ \text{Select: higher/lower} \].
---
**c. Quick Ratio Calculation**
Keystone has inventories of $3.1 million. Compute the firm’s quick ratio. Round your answer to two decimal places.
\[ \text{Quick Ratio:} \ \_\_\_\_ \ \text{times} \]
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