
Concept explainers
1.
To calculate: The AE company’s return on assets, profit margin and asset turnover.
1.

Explanation of Solution
Rate of return on the total assets is the ratio of the net income, and interest expense to the average total assets. The rate of return on total assets measures the efficiency of the business. It measures how efficiently the business is using its total assets in generating the income.
The rate of return on the total assets is calculated as follows:
- Determine the return on assets ratio:
The return on assets ratio is determined as follows:
Determine the average total assets:
Hence, the return on asset ratio is 12.5%.
- Determine the profit margin ratio:
The profit margin ratio is determined as follows:
Hence, the profit margin ratio is 6.7%.
Determine the asset turnover ratio:
The asset turnover ratio is determined as follows:
Hence, the asset turnover ratio is 1.9 times.
2.
To calculate: The B company’s return on assets, profit margin and asset turnover.
2.

Explanation of Solution
- Determine the return on assets ratio:
The return on assets ratio is determined as follows:
Determine the average total assets:
Hence, the return on asset ratio is 32.6%.
- Determine the profit margin ratio:
The profit margin ratio is determined as follows:
Hence, the profit margin ratio is 14.6%.
- Determine the asset turnover ratio:
Determine the asset turnover ratio is determined as follows:
Hence, the asset turnover ratio is 2.2 Times.
3.
To comment: On the ratios.
3.

Explanation of Solution
When comparing Company AE and Company B, the Company B’s ratios are higher than Company AE.
Want to see more full solutions like this?
Chapter 7 Solutions
Financial Accounting
- Please give me true answer this financial accounting questionarrow_forwardPlease given answer accounting questionarrow_forwardA business has a profit margin of 18% on total sales of $50,000,000. The firm holds total debt of $15,000,000, total assets of $60,000,000, and an after-tax interest cost on total debt of 6%. Determine the firm's Return on Assets (ROA).arrow_forward
- Calculate Jenkins' net sales for the period.arrow_forwardNeed solution. General accountingarrow_forwardTownsend Manufacturing has a predetermined overhead rate of $5 per machine hour. Last year, the company incurred $128,700 of actual manufacturing overhead cost, and the account was $4,500 over-applied. How many machine hours were used during the year?arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





