Chapter 15, Problem 3AA

Requirement-1:

To determine

To Calculate:

The Return on Total Assets of Samsung for the two most recent years

Answer to Problem 3AA

The Return on Total Assets of Samsung for the two most recent years is as follows:

	Samsung
	Current Year	1 Year Prior
Return on Total Assets	15.0%	9.0%

Explanation of Solution

The Return on Total Assets of Samsung for the two most recent years is calculated as follows:

	Samsung
In Millions	Current Year	1 Year Prior
Net Income (A)	42,186,747	22,726,092
Beginning Total Assets (B)	262,174,324	242,179,521
Ending Total Assets (C)	301,752,090	262,174,324
Average Total Assets (D) = (B+C)/2 =	281,963,207	252,176,923
Return on Total Assets =(A/D) =	15.0%	9.0%

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  $Returnonassets=\frac{Netincome}{AverageTotalAssets}$

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  $AveragetotalAssets=\frac{\left(Beginningtotalassets+Endingtotalassets\right)}{2}$

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

  $ProfitMargin =\frac{OperatingIncome}{Sales}$

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

  $AssetTurnoverRatio =\frac{Sales}{Averagetotalassets}$

Requirement-2:

To determine

If Return on Total Assets of Samsung for current year is better or worse than Apple and Google

Answer to Problem 3AA

The Return on Total Assets of Samsung for current year is better than Apple and Google both.

Explanation of Solution

The Return on Total Assets of Samsung, Apple and Google for the Current year is calculated as follows:

	Samsung	Apple	Google
In Millions	Current Year	Current Year	Current Year
Net Income (A)	42,186,747	48,351	12,662
Beginning Total Assets (B)	262,174,324	321,686	167,497
Ending Total Assets (C)	301,752,090	375,319	197,295
Average Total Assets (D) = (B+C)/2 =	281,963,207	348,503	182,396
Return on Total Assets =(A/D) =	15.0%	13.9%	6.9%

The Return on Total Assetsof Samsung is highest for the current year; hence return on Total Assets of Samsung for current year is better than Apple and Google both.

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  $Returnonassets=\frac{Netincome}{AverageTotalAssets}$

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  $AveragetotalAssets=\frac{\left(Beginningtotalassets+Endingtotalassets\right)}{2}$

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

  $ProfitMargin =\frac{OperatingIncome}{Sales}$

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

  $AssetTurnoverRatio =\frac{Sales}{Averagetotalassets}$

Requirement-3:

To determine

To Calculate:

The Profit Margin of Samsung for the current year

Answer to Problem 3AA

The Profit Margin of Samsung for the current year is 17.6%

Explanation of Solution

The Profit Margin of Samsung for the current year is calculated as follows:

	Samsung
In Million	Current Year
Net Income (A)	42,186,747
Net Sales (B)	239,575,376
Profit Margin (C) = A/B =	17.6%

Concept Introduction:

Return on total Assets:

The Return on total assets is profitability ratio that measures the percentage of profit earned on average assets invested in the business. Return on asset is calculated by dividing the net income by average total assets. The formula to calculate Return on assets is as follows:

  $Returnonassets=\frac{Netincome}{AverageTotalAssets}$

Note: Average total assets are calculated as an average of beginning and ending total assets. The formula to calculate the average total assets is as follows:

  $AveragetotalAssets=\frac{\left(Beginningtotalassets+Endingtotalassets\right)}{2}$

Profit Margin Ratio:

Profit Margin Ratio is a profitability ratio that represents the percentage income earned on the sales. It is calculated by dividing the Net Income by the Sales. The formulas to calculate the Profit margin is as follows:

  $ProfitMargin =\frac{OperatingIncome}{Sales}$

Asset Turnover Ratio:

Asset Turnover Ratio is an efficiency ratio that represents the sales earned on the average assets invested in the business. It is calculated by dividing the Sales by Average total assets. The formulas to calculate the Asset Turnover Ratio is as follows:

  $AssetTurnoverRatio =\frac{Sales}{Averagetotalassets}$

Requirement-4:

To determine

To Calculate:

The Total Asset Turnover of Samsung for the current year

Answer to Problem 3AA

The Total Asset Turnover of Samsung for the current year is 0.85

Explanation of Solution

The Total Asset Turnover of Samsung for the current year is calculated as follows:

	Samsung
In Million	Current Year
Net Income (A)	42,186,747
Net Sales (B)	239,575,376
Profit Margin (C) = A/B =	17.6%
Beginning Total Assets (D)	262,174,324
Ending Total Assets (E)	301,752,090
Average Total Assets (F) = (D+E)/2 =	281,963,207
Asset Turnover Ratio (G) = B/F=	0.85