East Point Retail, Inc. sells apparel through company-owned retail stores. Recent financial information for East Point follows (in thousands):                 Fiscal Year 3   Fiscal Year 2       Net income (loss) $151,500   $(78,000)       Interest expense 3,100   11,700         Fiscal Year 3   Fiscal Year 2   Fiscal Year 1   Total assets (at end of fiscal year) $1,553,578   $1,477,794   $1,325,332   Total stockholders' equity (at end of fiscal year) 1,186,163   1,162,675   863,299   Assume the apparel industry average return on total assets is 5.0% and the average return on stockholders' equity is 8.0% for the year ended February 2, Year 3. a.  Determine the return on total assets for East Point for fiscal Years 2 and 3. Round percentages to one decimal place. If required, use a minus sign to indicate a negative return on total assets. Fiscal Year 3 % Fiscal Year 2 % b.  Determine the return on stockholders’ equity for East Point for fiscal Years 2 and 3. Round percentages to one decimal place. If required, use a minus sign to indicate a negative return on stockholders' equity. Fiscal Year 3 % Fiscal Year 2 % c.  In Fiscal Year 3, the return on stockholders' equity is greater than  the return on total assets due to the positive  use of leverage.

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 apparel through company-owned retail stores. Recent financial information for East Point follows (in thousands):

             
  Fiscal Year 3   Fiscal Year 2      
Net income (loss) $151,500   $(78,000)      
Interest expense 3,100   11,700      
  Fiscal Year 3   Fiscal Year 2   Fiscal Year 1  
Total assets (at end of fiscal year) $1,553,578   $1,477,794   $1,325,332  
Total stockholders' equity (at end of fiscal year) 1,186,163   1,162,675   863,299  

Assume the apparel industry average return on total assets is 5.0% and the average return on stockholders' equity is 8.0% for the year ended February 2, Year 3.

a.  Determine the return on total assets for East Point for fiscal Years 2 and 3. Round percentages to one decimal place. If required, use a minus sign to indicate a negative return on total assets.

Fiscal Year 3 %
Fiscal Year 2 %

b.  Determine the return on stockholders’ equity for East Point for fiscal Years 2 and 3. Round percentages to one decimal place. If required, use a minus sign to indicate a negative return on stockholders' equity.

Fiscal Year 3 %
Fiscal Year 2 %

c.  In Fiscal Year 3, the return on stockholders' equity is greater than  the return on total assets due to the positive  use of leverage.

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