Empire Company reports the following information (in millions) during a recent year: net sales, $9,926.5; net earnings, $195.9; total assets, ending, $4,312.6; and total assets, beginning, $4,254.3.

Instructions

(a) Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin ratios.

(b) Prove mathematically how the profit margin and asset turnover ratios work together to explain return on assets, by showing the appropriate calculation.

(c) Empire Company owns Sobeys (grocery), Empire Theaters, Lawton Drugstores, and Wajax (heavy equipment), and manages commercial real estate, among other activities.

Does this diversity of activities affect your ability to interpret the ratios you calculated in (a)? Explain.