Profitability Ratios East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands). Fiscal Year 3 Fiscal Year 2 Net income $147,800 $76,100 Interest expense 3,000 11,400 Fiscal Year 3 Fiscal Year 2 Fiscal Year 1 Total assets (at end of fiscal year) $2,533,934 $2,410,328 $2,194,936 Total stockholders' equity (at end of fiscal year) 1,213,642 1,189,610 867,146 Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3. a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place. Fiscal Year 3 fill in the blank 1 % Fiscal Year 2 fill in the blank 2 % b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place. Fiscal Year 3 fill in the blank 3 % Fiscal Year 2 fill in the blank 4 % c. The return on stockholders' equity is the return on total assets due to the use of leverage.
Profitability Ratios
East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands).
| Fiscal Year 3 | Fiscal Year 2 | ||||
| Net income | $147,800 | $76,100 | |||
| Interest expense | 3,000 | 11,400 |
| Fiscal Year 3 | Fiscal Year 2 | Fiscal Year 1 | ||||
| Total assets (at end of fiscal year) | $2,533,934 | $2,410,328 | $2,194,936 | |||
| Total |
1,213,642 | 1,189,610 | 867,146 |
Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3.
a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place.
| Fiscal Year 3 | fill in the blank 1 % |
| Fiscal Year 2 | fill in the blank 2 % |
b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place.
| Fiscal Year 3 | fill in the blank 3 % |
| Fiscal Year 2 | fill in the blank 4 % |
c. The return on stockholders' equity is
the return on total assets due to the
use of leverage.
d. During fiscal Year 3, East Point’s results were
compared to the industry average. The return on total assets for East Point was
than the industry average. The return on stockholders’ equity was
than the industry average. These relationships suggest that East Point has
leverage than the industry, on average.
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