Concept Introduction
Return on assets: Return on Assets (ROA) is an accounting ratio that describes how profitable a company is with respect to its total assets. ROA explains how efficiently the management has utilized the business assets for generating earnings. ROA is calculated by dividing a company’s annual income by the average assets of the company. ROA is described in percentage terms.
Debt Ratio: Debt ratio is a financial ratio that calculates the leverage of the company. It is the ratio of the total debt to the total assets and is represented in percentage terms. The debt ratio explains the amount of debt on the
1.a.
To Compute: The Debt ratio and the return on assets ratio for the data given.
To find: The Company, whose business relies most heavily on creditor financing.
To find: The Company, whose business relies most heavily on equity financing.
To find: Two Companies with greatest risk based on debt ratio.
To find: Two Companies which earn the highest return on assets.
To find: The Company that the investors would most likely prefer based on the risk–return relation.
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Chapter 2 Solutions
WORKING PAPERS F/ FUND ACCOUNTING
- DBZ Company produces two products, Gamma and DBZ. Gamma is a high-volume item totaling 25,000 units annually. DBZ is a low-volume item totaling only 8,000 units per year. Gamma requires 1.5 hours of direct labor for completion, while each unit of DBZ requires 3 hours. Therefore, total annual direct labor hours are 55,500 (25,000 × 1.5 + 8,000 × 3). Expected annual manufacturing overhead costs are $720,000. DBZ uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of DBZ would be assigned an overhead of _____. A) $30.00 B) $20.00 C) $32.43 D) $38.91arrow_forwardChoose the correct optionarrow_forwardSam Enterprises has a return on equity of 14.8%.The debt-equity ratio is 52%, and the capital intensity ratio is 1.15. The company has current assets of $165,000. What is the profit margin?arrow_forward
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