Chapter 3, Problem 3.12E

To determine

Concept Introduction:

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:

Profit Margin = Net Income / 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:

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

Return on Investment: The Return on Investment 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:

Return on Investment = Net Income / Average Total Assets

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:

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

Requirement-a:

To Calculate:

The Margin, Turnover, and ROI of Firm D

Answer to Problem 3.12E

The Margin, Turnover, and ROI of Firm D are as follows:

Margin	3.8%
Turnover	2.5
ROI	9.5%

Explanation of Solution

The Margin, Turnover, and ROI of Firm D are calculated as follows:

Net Income (A)	$61,750
Sales (B)	$ 1,625,000
Average Total Assets (C)	$ 650,000
Margin (A/B)	3.8%
Turnover (B/C)	2.5
ROI (A/C)	9.5%

Concept Introduction:

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:

Profit Margin = Net Income / 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:

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

Return on Investment: The Return on Investment 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:

Return on Investment = Net Income / Average Total Assets

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:

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

To determine

Requirement-b:

To Calculate:

The Turnover and Average Total Assets of Firm E

Answer to Problem 3.12E

The Turnover and Average Total Assets of Firm E are as follows:

Average Total Assets	$ 1,500,000
Turnover	2.3

Explanation of Solution

The Turnover and Average Total Assets of Firm E are calculated as follows:

Net Income (A)	$ 241,500
ROI (B)	16.10%
Average Total Assets (C) = A/B	$ 1,500,000
Sales (D)	$ 3,450,000
Turnover (D/C)	2.3

Concept Introduction:

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:

Profit Margin = Net Income / 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:

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

Return on Investment: The Return on Investment 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:

Return on Investment = Net Income / Average Total Assets

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:

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

To determine

Requirement-c:

To Calculate:

The Sales, Margin, and Net Income of Firm F

Answer to Problem 3.12E

The Sales, Margin, and Net Income of Firm F are as follows:

Sales	$ 2,040,000
Net Income	$ 255,000
Margin	12.5%

Explanation of Solution

The Sales, Margin, and Net Income of Firm F are calculated as follows:

Average Total Assets (A)	$ 1,700,000
Turnover (B)	1.2
Sales (C) = A*B	$ 2,040,000
ROI (D)	15%
Net Income (E) =(A*D)	$ 255,000
Margin (E/C)	12.5%