Chapter 7, Problem 7.10AP

Calculate and interpret ratios (LO7–7)

University Hero is considering expanding operations beyond its healthy sandwiches. Jim Axelrod, vice president of marketing, would like to add a line of smoothies with a similar health emphasis. Each smoothie would include two free health supplements such as vitamins, antioxidants, and protein. Jim believes smoothie sales should help fill the slow mid-afternoon period. Adding the line of smoothies would require purchasing additional freezer space, machinery, and equipment. Jim provides the following projections of net sales, net income, and average total assets in support of his proposal.

	Sandwiches Only	Sandwiches and Smoothies
Net sales	$900,000	$1,500,000
Net income	170,000	260,000
Average total assets	500,000	900,000

Required:

  1.    Calculate University Hero’s return on assets, profit margin, and asset turnover for sandwiches only.

  2.    Calculate University Hero's return on assets, profit margin, and asset turnover for sandwiches and smoothies.

 3.    Based on these ratios, what recommendation would you make?