Question

The 2021 income statement for Anderson TV and Appliance reported net sales of $260,000 and net income of $60,000. Average total assets for 2021 was $800,000. Shareholders’ equity at the beginning of the year was $500,000 and $20,000 was paid to shareholders as dividends. There were no other shareholders’ equity transactions that occurred during the year. Calculate the profit margin on sales, return on assets, and return on equity for 2021.

Answer 1

Answer:

The profit margin on sales, return on assets, and return on equity for 2021 is 23.08%, 7.5% and 12.5% respectively.

Explanation:

The ratios are shown below:

1. Profit margin = Net income ÷ net sales × 100

                         = $60,000 ÷ $260,000 × 100

                         = 23.08%

2. Return on assets equals to

= Net income ÷ average total assets × 100

= $60,000 ÷ $800,000 × 100

= 7.5%

3. Return on equity equals to

= Net income ÷ (shareholder equity - dividend paid) × 100

= $60,000 ÷ ($500,000 - $20,000) × 100

= $60,000 ÷ $480,000 × 100

= 12.5%