For the year ended December 31, 2013, Peters Corporation, earned an ROI of 13%.
ID: 2478134 • Letter: F
Question
For the year ended December 31, 2013, Peters Corporation, earned an ROI of 13%. Sales for the year were $13 million, and average asset turnover was 2.4. Average stockholders' equity was $2.7 million.
Calculate Peters Corporation's margin and net income. (Round your "margin" answer to 1 decimal place (i.e., 32.1).)
Calculate Peters Corporation's return on equity. (Round your answer to 1 decimal place. (e.g., 32.1))
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For the year ended December 31, 2013, Peters Corporation, earned an ROI of 13%. Sales for the year were $13 million, and average asset turnover was 2.4. Average stockholders' equity was $2.7 million.
Explanation / Answer
Solution:
Given information:
ROI = 13%
Sales = $13 million
Average Asset Turnover = 2.4
Average Stockholder’s Equity = $2.7 million
a) Calculation of Peters Corporation's margin and net income
ROI = Net Income / Average Shareholder’s Equity = 13%
Net Income / Average Shareholder’s Equity = 13%
Net Income = 13% x $2,700,000 = $351,000
Margin = Net Profit / Sales x 100 = $351,000 / $13,000,000 x 100 = 2.7%
b) Calculation of Return on Equity
Return on Equity = Net Income / Average Stockholder’s Equity x 100
= $351,000 / $2,700,000 x 100
= 13%