Horngren's Financial & Managerial Accounting (6th Global Edition)
Horngren's Financial & Managerial Accounting (6th Global Edition)
6th Edition
ISBN: 9780134486833
Author: Tracie L. Miller-Nobles, Brenda L. Mattison
Publisher: Pearson Global Edition
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Chapter 15, Problem 15.9SE

Requirement 1:

To determine

Profitability ratios: In general, financial ratios are used to evaluate capabilities, profitability, and overall performance of a company. The following are the ratios that evaluate the profitability of a company:

  • Profit margin ratio: Profit margin ratio is used to determine the percentage of net income that is being generated per dollar of revenue or sales.

Formula: Profit Margin=NetincomeNetrevenue

  • Rate of return on total assets: Return on assets determines the particular company’s overall earning power.

Formula: Rate of return on assets=NetincomeAverage total assets

  • Asset turnover ratio: Asset turnover ratio is used to determine the asset’s efficiency towards sales.  

Formula: Asset turnover =NetrevenueAverage total assets

  • Rate of return on common stockholders’ equity: Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula: Rate of return = Net income Preferred dividendsAverage common stockholder’s equity  

To compute: Profitability ratios

Requirement 2:

To determine

To compute: Compute the rate of return on total assets for Company A for 2018.

Requirement 3:

To determine

To compute: Compute asset turnover for the Company A for the year 2018.

Requirement 4:

To determine

To compute: Compute the rate of return on common stockholders’ equity for the Company S for the year 2018.

Requirement 5:

To determine

To Comments: Rate of return on total assets.

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Chapter 15 Solutions

Horngren's Financial & Managerial Accounting (6th Global Edition)

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