Selected data from the Carmen Company at year end are presented below: Total ass

Question

Selected data from the Carmen Company at year end are presented below: Total assets Average total assets Net income $2,000,000 2,200,000 250,000 1,300,000 1,000,000 275,000 10,000 Average common stockholders equity Net cash provided by operating activities Shares of common stock outstanding Required Calculate the profitability ratios that can be computed from the above information. Assume the company had no preferred stock or interest expense. Ro percentage values to one decimal place and dollar value to zero decimal place. (a) Ratio of sales to assets (b) Rate earned on total assets (c) Rate earned on common stockholders' equity (d) Earnings per share on common stock S( ) per share

Explanation / Answer

(a) Ratio of sales to assets = Sales revenue / Total assets
= $1,300,000/ $2,000,000 = 65.0%

(b) Rate earned on total assets = Annual net income / Average total assets
= $250,000 / $2,200,000 = 11.4%

(c) Rate earned on common stockholder's equity = Net Income / Average common stockholder's equity
= $250,000 / $1,000,000 = 25%

(d) Earning per share on common stock = Net Income / Share of common stock outstanding
= $250,000 / 10,000 = $25 per share

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