Question

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.

Step 1

The formula for total asset turnover is given below:

Step 2

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

Step 3

Equity multiplier is 2.5.

The formula for e...

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