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Profitability ratios Ralph Lauren Corporation sells apparel through company-owned retail stores. Recent financial information for Ralph Lauren follows (in thousands): Fiscal Year 3 Final Year 2 Net income $567,600 $479,500 Interest expense 18,300 22,200 Fiscal Year 3 Fiscal Year 2 Fiscal Year 1 Total assets (at end of fiscal year) $4,981,100 $4,648,900 $4,356,500 Total stockholders' equity {at end of fiscal year) 3,304,700 3,116,600 2,735,100 Assume the apparel industry average return on total assets is 8.0%, and the average rate earned on stockholders' equity is 10.0% for the year ended April 2, Year 3. A. Determine the return on total assets for Ralph Lauren for fiscal Years 2 and 3. (Round percentages to one decimal place.) B. Determine the return on stockholders’ equity for Ralph Lauren for fiscal Years 2 and 3. (Round percentages to one decimal place.) C. Evaluate the two-year trend for the profitability ratios determined in (A) and (B). D. Evaluate Ralph Lauren s profit performance relative to the industry.

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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Chapter
Section
BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 15, Problem 15.18EX
Textbook Problem
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Profitability ratios

Ralph Lauren Corporation sells apparel through company-owned retail stores. Recent financial information for Ralph Lauren follows (in thousands):

  Fiscal Year 3 Final Year 2  
Net income $567,600 $479,500  
Interest expense 18,300 22,200  
  Fiscal Year 3 Fiscal Year 2 Fiscal Year 1
Total assets (at end of fiscal year) $4,981,100 $4,648,900 $4,356,500
Total stockholders' equity {at end of fiscal year) 3,304,700 3,116,600 2,735,100

Assume the apparel industry average return on total assets is 8.0%, and the average rate earned on stockholders' equity is 10.0% for the year ended April 2, Year 3.

  • A. Determine the return on total assets for Ralph Lauren for fiscal Years 2 and 3. (Round percentages to one decimal place.)
  • B. Determine the return on stockholders’ equity for Ralph Lauren for fiscal Years 2 and 3. (Round percentages to one decimal place.)
  • C. Evaluate the two-year trend for the profitability ratios determined in (A) and (B).
  • D. Evaluate Ralph Lauren s profit performance relative to the industry.

a)

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

To determine: Return on total assets for RL for fiscal years 2 and 3

Given info: Selected items from the financial statements for fiscal years 1, 2, and 3.

Explanation of Solution

  • Determine return on total assets.

Fiscal year 3

Rate of return on assets=Netincome + Interest expenseAverage total assets=$567,600+$18,300$4,815,000=12.2%

Fiscal year 2

Rate of return on assets=Netincome + Interest expenseAverage total assets=$479,500+$22,200$4,502,700=11.1%

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets

b)

To determine

To Determine: return on stockholders’ equity.

c)

To determine

To evaluate: Two-year trend for the profitability ratios.

d)

To determine

To evaluate: RL’s profit performance relative to the industry

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Chapter 15 Solutions

Financial & Managerial Accounting
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Ch. 15 - Horizontal analysis The comparative temporary...Ch. 15 - Horizontal analysis The comparative accounts...Ch. 15 - Vertical analysis Income statement information for...Ch. 15 - Vertical analysis Income statement information for...Ch. 15 - Current position analysis The following items are...Ch. 15 - Current position analysis The following items are...Ch. 15 - Accounts receivable analysis A company reports the...Ch. 15 - Accounts receivable analysis A company reports the...Ch. 15 - Inventory analysis A company reports the...Ch. 15 - Inventory analysis A company reports the...Ch. 15 - Long-term solvency analysis The following...Ch. 15 - Long-term solvency analysis The following...Ch. 15 - Times interest charges are earned A company...Ch. 15 - Times interest earned A company reports the...Ch. 15 - Sales to assets A company reports the following:...Ch. 15 - Sales to assets A company reports the following:...Ch. 15 - Rate earned on total assets A company reports the...Ch. 15 - Rate earned on total assets A company reports live...Ch. 15 - Common stockholders profitability analysis A...Ch. 15 - Common stockholders' profitability analysis A...Ch. 15 - Earnings per share and price-earnings ratio A...Ch. 15 - Earnings per share and price-earnings ratio A...Ch. 15 - Vertical analysis of income statement Revenue and...Ch. 15 - Vertical analysis of income statement The...Ch. 15 - Common-sized income statement Revenue and expense...Ch. 15 - Vertical analysis of balance sheet Balance sheet...Ch. 15 - Horizontal analysis of the income statement Income...Ch. 15 - Current position analysis The following data were...Ch. 15 - Current position analysis PepsiCo, Inc., the...Ch. 15 - Current position analysis The bond indenture for...Ch. 15 - Accounts receivable analysis The following data...Ch. 15 - Accounts receivable analysis Xavier Stores Company...Ch. 15 - Inventory analysis The following data were...Ch. 15 - Inventory analysis Dell Inc. and Hewlett-Packard...Ch. 15 - Ratio of liabilities to stockholders equity and...Ch. 15 - Ratio of liabilities to stockholders' equity and...Ch. 15 - Ratio of liabilities to stockholders' equity and...Ch. 15 - Ratio of sales to assets Three major segments of...Ch. 15 - Profitability ratios The following selected data...Ch. 15 - Profitability ratios Ralph Lauren Corporation...Ch. 15 - Six measures of solvency or profitability The...Ch. 15 - Five measures of solvency or profitability The...Ch. 15 - Earnings per share, price-earnings ratio, dividend...Ch. 15 - Price-earnings ratio; dividend yield The table...Ch. 15 - Appendix Earnings per share, extraordinary item...Ch. 15 - Appendix Extraordinary item Assume that the amount...Ch. 15 - Appendix Income statement and earnings per share...Ch. 15 - Unusual items Explain whether Colston Company...Ch. 15 - Horizontal analysis of income statement For 2016,...Ch. 15 - Vertical analysis of income statement For 2016,...Ch. 15 - Effect of transactions on current position...Ch. 15 - Nineteen measures of solvency and profitability...Ch. 15 - Solvency and profitability trend analysis Addai...Ch. 15 - Horizontal analysis of income statement For 2016,...Ch. 15 - Vertical analysis of income statement For 2016....Ch. 15 - Effect of transactions on current position...Ch. 15 - Nineteen measures of solvency and profitability...Ch. 15 - Solvency and profitability trend analysis Crosby...Ch. 15 - Financial Statement Analysis The financial...Ch. 15 - Analysis of financing corporate growth Assume that...Ch. 15 - Receivables and inventory turnover Rodgers...Ch. 15 - Vertical analysis The condensed income statements...Ch. 15 - Profitability and stockholder ratios Deere Co....Ch. 15 - Comprehensive profitability and solvency analysis...

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