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Assignment - CHAPTER 2 - PreetiKapur

The document contains 4 examples calculating financial metrics like profit margin, return on assets, and asset turnover for different divisions or companies. Each example provides sales, assets, and sometimes profit information and uses formulas to derive the missing metrics. The metrics are then compared between divisions to determine which has superior performance based on the higher return on assets or profit margin.

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Preeti Kapur
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38 views3 pages

Assignment - CHAPTER 2 - PreetiKapur

The document contains 4 examples calculating financial metrics like profit margin, return on assets, and asset turnover for different divisions or companies. Each example provides sales, assets, and sometimes profit information and uses formulas to derive the missing metrics. The metrics are then compared between divisions to determine which has superior performance based on the higher return on assets or profit margin.

Uploaded by

Preeti Kapur
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Answer 1:

Division A (Information Given)


Given)
Profit: $100,000
Sales: $2,000,000
Profit Margin: Net Income
Net Income
Sales
Sales
($100,000/$2,000,000) * 100
100
Profit Margin for Division A: 5%
Division B: 8.33%

Division B (Information
Profit: $25,000
Sales: $300,000
Profit Margin:

($100,000/$2,000,000) *
Profit Margin for

Profit Margin (return on sales) for Division B is higher than Profit Margin for Division A, hence
division B is superior.

Answer 2:
(Information Given)
Cost of Assets: $500,000
Sales: $1,200,000
Profit Margin: 6%
Return on assets(investment): Net Income
Total Assets
Profit Margin: Net Income
Sales
Net income: Profit Margin * sales
(6/100) * $1,200,000
: $72,000
Return on assets(investment): ($72,000/$500,000) *100
:14.4%

Net Income for the year: $72,000


Return on assets(investment) :14.4%

Answer 3:
(Information Given)
Annual Sales: $960,000
Asset Turn Over: 2.4 times per year
Profit Margin: 7%
Profit Margin: Net Income
Sales
Net income: Profit Margin x sales
(7 * $960,000)/100
$67,200
Asset Turn over:

Sales___
Total Assets

Total Assets: Sales/Asset Turn over


$960,000/2.4
$400,000
Return on assets(investment): Net Income
Total Assets
: ($67,200/$400,000) * 100
: 16.8%
Net Income for the year: $67,200
Return on assets(investment) :16.8%

Answer 4:
(Information Given)
Assets: $5,000,000
Asset Turn Over: 1.2 times per year
Return on Assets: 8%
Asset Turn over:

Sales___
Total Assets

Sales: $5,000,000 * 1.2


: $6,000,000
Return on assets(investment): Net Income
Total Assets
Net Income: (8*$5,000,000)/100
: $400,000

Profit Margin: Net Income


Sales
:($400,000/$6,000,000)*100
:6.67%
Profit Margin (return on sales) : 6.67%

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