Cream of Tomato Company has the following data available.Net income = $250,000Sales = $2.5 millionTotal asset turnover = 3Equity multiplier = 2.5Cream of Tomato does not have any preferred stock outstanding. Note that the equitymultiplier is defined as total assets to equity. Calculate the return on assets and return onequity for Cream of Tomato.

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Asked Dec 8, 2019
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Cream of Tomato Company has the following data available.
Net income = $250,000
Sales = $2.5 million
Total asset turnover = 3
Equity multiplier = 2.5
Cream of Tomato does not have any preferred stock outstanding. Note that the equity
multiplier is defined as total assets to equity. Calculate the return on assets and return on
equity for Cream of Tomato.

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Expert Answer

Step 1

The formula for total asset turnover is given below:

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Net sales Total asset turnover ratio = Total asset

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Step 2

Substitute 3 for total asset turnover ratio and $2,500,000 for net sales,

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$2, 500, 000 3 = Total asset $2, 500, 000 Total asset 3 Total asset = $833, 333.33

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Step 3

Equity multiplier is 2.5.

The formula for e...

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Total asset Equity multiplier Equity

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