Asked by Haley Adams on Jul 06, 2024
Verified
Noble Company had net income of $175000 and net sales of $625000 in 2017. The company's total assets for 2013/2017 averaged $4000000. Its common stockholders' equity for the period averaged $2340000. Calculate (a) profit margin (b) return on assets and (c) return on common stockholders' equity.
Profit Margin
A financial metric that measures the amount of net earnings a company makes as a proportion of its sales.
Return On Common Stockholders' Equity
A measure of the profitability of a corporation in terms of the returns generated on the equity investment of the common shareholders.
Net Sales
Net sales represent the revenue a company generates from its business activities, after subtracting returns, allowances for damaged goods, and discounts.
- Comprehend the methodology for computing and interpreting different financial ratios such as liquidity, solvency, and profitability.
- Acquire the skills to execute computations regarding returns on equity and assets for the assessment of an organization's financial health.
Verified Answer
(b) Return on assets = $175000 ÷ $4000000 = 4.4%
(c) Return on common stockholders' equity = $175000 ÷ $2340000 = 7.5%
Learning Objectives
- Comprehend the methodology for computing and interpreting different financial ratios such as liquidity, solvency, and profitability.
- Acquire the skills to execute computations regarding returns on equity and assets for the assessment of an organization's financial health.
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