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 $155,800 $80,200 Interest expense 3,200 12,000 Fiscal Year 3 Fiscal Year 2 Fiscal Year 1 Total assets (at end of fiscal year) $2,116,558 $2,013,312 $1,749,954 Total stockholders' equity (at end of fiscal year) 1,157,044 1,134,132 821,966 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 (greater/less) than the return on total assets due to the (positive/negative) use of leverage. d. During fiscal Year 3, East Point’s results were (strong/weak) compared to the industry average. The return on total assets for East Point was (more/less) than the industry average. The return on stockholders’ equity was (more/less) than the industry average. These relationships suggest that East Point has (more/less) leverage than the industry, on average.
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 | $155,800 | $80,200 | |||
| Interest expense | 3,200 | 12,000 |
| Fiscal Year 3 | Fiscal Year 2 | Fiscal Year 1 | ||||
| Total assets (at end of fiscal year) | $2,116,558 | $2,013,312 | $1,749,954 | |||
| Total |
1,157,044 | 1,134,132 | 821,966 |
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 (greater/less) than the return on total assets due to the (positive/negative) use of leverage.
d. During fiscal Year 3, East Point’s results were (strong/weak) compared to the industry average. The return on total assets for East Point was (more/less) than the industry average. The return on stockholders’ equity was (more/less) than the industry average. These relationships suggest that East Point has (more/less) leverage than the industry, on average.
The return on assets indicates the income generated by the assets. The return on asset is a measure used to evaluate the profitability of the entity. The greater return on assets indicates the profitability of the entity is good.
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