1. Keller Cosmetics maintains a profit margin of 4 percent and a sales-to-assets ratio of 3.
a. What is its return on assets?
b. If its debt-equity ratio is 1.0, its interest payments and taxes are each $10,000, and EBIT is $40,000, what is the return on equity?
2. Sara Togas sells all its output to Federal Stores. The following table shows selected financial data, in millions, for the two firms:
Sales Profits Assets
Federal Stores $100 $10 $50
Sara Togas $20 $4 $20
a. Calculate the sales-to-assets ratio, the profit margin, and the return on the two firms.
b. Now assume that the two companies merge. If Federal continues to sell goods worth $100 million how will the three financial ratios change?
a. 2/30, net 60. The customer is granted a 2% discount is paid within 30 days. The full amount is due in 60.
b. 2/5, EOM, net 30. This customer will receive 2%
c. COD. Cash on delivery. No interest is payable on cash.
The solution calculates return on assets, return on equity, sales-to-assets ratio, profit margin, rate of interest.