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Firm Performance: Ratios and Recommendations

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In millions of dollars A B C D
Sales $250 $10 $15 $25
Net Income after tax 3 0.5 2.25 3
Total Assets 15 7.5 15 24
Stockholders' equity 10 5.0 14 10

How can I get total asset turnover, the net profit margin, the equity multiplier, and the return on equity for each firm?

Which firms are having problems, what corrective action could be suggested for the poorer performing firm and what additional data should I have on hand when conducting my analysis?

Thanks
Gail

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Solution Summary

This solution shows step-by-step calculations to determine asset turnover, net profit margin, equity multiplier, return of equity as well as a recommendation on how to improve poorer performing firms.

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ANSWERS

Asset turnover = sales/total assets
A = 250/15=16.67
B = 10/7.5=1.33
C = 15/15=1
D =25/24=1.04

Net profit margin = net income after tax/sales
A = 3/250=0.012
B = .5/10=0.05
C = 2.25/15=.15
D =3/25.12

Equity multiplier = total assets/stockholders' equity
A = 15/10=1.5
B = ...

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