Profitability Ratios East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands). Fiscal Year 3 Fiscal Year 2 Net income $145,600 $75,000 Interest expense 3,000 11,200 Fiscal Year 3 Fiscal Year 2 Fiscal Year 1 Total assets (at end of fiscal year) $2,273,358 $2,162,462 $1,942,300 Total stockholders' equity (at end of fiscal year) 1,148,875 1,126,125 821,927 Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3. a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place. Fiscal Year 3 fill in the blank 1 % Fiscal Year 2 fill in the blank 2 % b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place. Fiscal Year 3 fill in the blank 3 % Fiscal Year 2 fill in the blank 4 % c. The return on stockholders' equity is the return on total assets due to the use of leverage. d. During fiscal Year 3, East Point’s results were compared to the industry average. The return on total assets for East Point was than the industry average. The return on stockholders’ equity was than the industry average. These relationships suggest that East Point has leverage than the industry, on average.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 18E

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Profitability Ratios

East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands).

	Fiscal Year 3	Fiscal Year 2
Net income	$145,600		$75,000
Interest expense	3,000		11,200

	Fiscal Year 3	Fiscal Year 2	Fiscal Year 1
Total assets (at end of fiscal year)	$2,273,358		$2,162,462	$1,942,300
Total stockholders' equity (at end of fiscal year)	1,148,875		1,126,125	821,927

Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3.

a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place.

Fiscal Year 3	fill in the blank 1 %
Fiscal Year 2	fill in the blank 2 %

b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place.

Fiscal Year 3	fill in the blank 3 %
Fiscal Year 2	fill in the blank 4 %

c. The return on stockholders' equity is the return on total assets due to the use of leverage.

d. During fiscal Year 3, East Point’s results were compared to the industry average. The return on total assets for East Point was than the industry average. The return on stockholders’ equity was than the industry average. These relationships suggest that East Point has leverage than the industry, on average.

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