(Understanding return on assets, LO 2) You are provided with the following information about Wha Ti Inc. (Wha Ti), a vehicle repair company.

Required:

a. Calculate Wha Ti’s return on assets by determining its profit margin and asset turnover ratio. Assume that profit margin equals net income divided by sales.

b. Calculate Wha Ti’s return on equity by using its return on assets and its financial leverage.

c. Explain why js it not possible for an entity’s return on assets to be greater than its return on equity.

d. Assess the profitability of Wha Ti. In your response, explain the reasons for any changes in Wha Ti’s profitability.

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Sales Net income Total liabilities 2005 2004 2003 2002 2001 $3,829,056 $3,418,800 $3,052,500 $2,750,000 134,017 129,914 122,100 115,500 (at year end) Shareholders' equity (at year end) 638,141 607,753 578,813 551,250 525,000 1,274,493 1,140,476 1,010,562 888,462 772,962