Question

Queen Products Company are presented below. All balance sheet data are as of December 31.

2017 2016
Net sales $757,500 $721,500
Cost of goods sold 480,500 445,000
Interest expense 8,000 4,200
Net income 45,500 37,000
Accounts receivable 123,500 110,000
Inventory 85,700 72,400
Total assets 577,100 501,300
Total common stockholders’ equity 433,400 324,500

Compute the following ratios for 2017. (Round answers to 1 decimal place, e.g. 1.6, or 1.6% .)
Profit margin:
1. Asset turnover times.
2. Return on assets.
3. Return on common stockholders’ equity.

Answer 1

1. Asset turnover times. =1.31 times

2. Return on assets. = 7.9%

3. Return on common stockholders’ equity =10.5%

Step-by-step explanation:

Asset turnover

Asset turnover indicates how efficient a business in the use of asset to generate sales. The higher the number of times the better.

Asst turnover = Turnover /Total asset

= 757,500/577,100

=1.31 times

Return on Asset

Return on asset is measure of the percentage of asset earned as income. The higher the better

Return on assets = Net income/Assets

= 45,500/577,100× 100

= 7.9%

Return on Equity

This measures the proportion of equity investment earned as net income. The higher the better

Return on Equity = Net income/Equity

Return on commons stockholders

= 45,500/433,400 × 100

=10.5%