Question 1

1a) A company has $1 billion of sales and $50 million of net income. Its total assets are $500 million, financed half by debt and half by common equity. What is its profit margin? What is its ROA?

4

Sales ($M)

Net income ($M)

Total assets ($M)

Debt ratio

Profit margin

Sales ($M)

Net income ($M)

Total assets ($M)

Debt ratio

ROA

1b) A company has a profit margin of 6%, a total asset turnover ratio of 2, and an equity multiplier of 1.5. What is its ROE?

3

Profit margin

Total asset turnover

Equity multiplier

ROE

Tony Tony, a small-size investment company, has the following Balance sheet.

Cash

$47

Accounts receivable

$35

Inventories

$117

Net fixed assets

$585

Total assets

$784

Accounts payable

$20

Accruals

$10

ST debt

$25

LT debt

$200

Total common equity

$529

$784

1c) What is Tony Tony's Debt-to equity ratio?

3

Total debt

Total common equity

Debt-to-equity ratio