Chapter 12, Problem 11P

a)

Summary Introduction

To determine: Return on equity (ROE)

Explanation of Solution

Calculation of return on equity:

$\begin{array}{c}\text{ROE}=\frac{\text{Net}\text{income}}{\text{Total}\text{equity}}\\ =\frac{\$2,275}{\left(\$5,000+\$4,000+\$6,125\right)}\\ =\frac{\$2,275}{\$15,125}\\ =15.04\%\end{array}$

Therefore, return on equity is 15.04%

b)

Summary Introduction

To determine: Return on assets (ROA).

Explanation of Solution

Calculation of ROA:

$\begin{array}{c}\text{ROA}=\frac{\text{Net}\text{income}}{\text{Total}\text{assets}}\\ =\frac{\$2,275}{\$137,500}\\ =1.65\%\end{array}$

Therefore, return on assets is 1.65%

c)

Summary Introduction

To determine: Asset utilization.

Explanation of Solution

Calculation of asset utilization:

$\begin{array}{c}\text{Asset}\text{utilization}=\frac{\text{Interest}\text{income}+\text{non-interest}\text{income}}{\text{Total}\text{assets}}\\ =\frac{\$8,623+\$950}{\$137,500}\\ =6.96\%\end{array}$

Therefore, asset utilization is 6.96%

d)

Summary Introduction

To determine: Equity multiplier.

Explanation of Solution

Calculation of equity multiplier:

$\begin{array}{c}\text{Equity multiplier}=\frac{\text{Total}\text{assets}}{\text{Total}\text{shareholder's}\text{equity}}\\ =\frac{\$137,500}{\left(\$5,000+\$4,000+\$6,125\right)}\\ =9.09\text{X}\end{array}$

Therefore, equity multiplier is 9.09X

e)

Summary Introduction

To determine: Profit margin.

Explanation of Solution

Calculation of profit margin:

$\begin{array}{c}\text{Profit margin}=\frac{\text{Net income}}{\text{Sales}}\\ =\frac{\$2,275}{\$8,623+\$950}\\ =23.76\%\end{array}$

Therefore, profit margin is 23.76%

f)

Summary Introduction

To determine: Interest expense ratio.

Explanation of Solution

Calculation of interest expense ratio:

$\begin{array}{c}\text{Interest expense ratio}=\frac{\text{EBIT}}{\text{}\text{Total Interest}\text{expense}}\\ =\frac{\$4,158}{\left(\$8,623+\$950\right)}\\ =43.43\%\end{array}$

Therefore, interest expense ratio is 43.43%

g)

Summary Introduction

To determine: Provision for loan loss ratio.

Explanation of Solution

Calculation of provision for loan loss ratio:

$\begin{array}{c}\text{Provision for loan loss ratio}=\frac{\text{Provison}\text{for}\text{loans}}{\text{Net-charge offs}}\\ =\frac{\$200}{\$8,623+\$950}\\ =2.09\%\end{array}$

Therefore, provision for loan loss ratio is 2.09%

h)

Summary Introduction

To determine: Non-interest expense ratio.

Explanation of Solution

Calculation of non-interest expense ratio:

$\begin{array}{c}\text{Non-interest expense ratio}=\frac{\text{Non-interest expense}}{\text{Interest}\text{income}+\text{non-interest}\text{income}}\\ =\frac{\$1,720}{\$8,623+\$950}\\ =17.97\%\end{array}$

Therefore, non-interest expense ratio is 17.97%

i)

Summary Introduction

To determine: Tax ratio.

Explanation of Solution

Calculation of tax ratio:

$\begin{array}{c}\text{Tax}\text{ratio}=\frac{\text{Taxes}}{\text{Net income}}\\ =\frac{\$1,220}{\$8,623+\$950}\\ =12.74\%\end{array}$

Therefore, tax ratio is 12.74%

j)

Summary Introduction

To determine: Overhead efficiency.

Explanation of Solution

Calculation of overhead efficiency:

$\begin{array}{c}\text{Non-interest expense ratio}=\frac{\text{Expenses}}{\text{Revenue}}\\ =\frac{\$950}{\$1,720}\\ =55.23\%\end{array}$

Therefore, non-interest expense ratio is 55.23%