Chapter 10, Problem 10.35AE

LO 5

(Learning Objective 5: Calculate and interpret ratios) Data from the financial statements of Eclectic Candle Company included the following:

Average total assets....................................................................	$50,000
Average common stockholders’ equity........................................	20,000
Net sales....................................................................................	100,000
Net income..................................................................................	7,500

The company had no preferred stock.

Requirements

1. 1. Calculate the following ratios:
   1. a. Net profit margin
   2. b. Asset turnover ratio
   3. c. Leverage ratio
   4. d. Return on assets (ROA)
   5. e. Return on equity (ROE)
2. 2. Which is higher, ROA or ROE? Does this make sense for stockholders? Why or why not?