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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): Assume that the apparel industry average return on total assets is 8.0% and the average return 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.

BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094
BuyFind

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 17, Problem 17.18EX
Textbook Problem

Profitability ratios

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

Chapter 17, Problem 17.18EX, Profitability ratios Ralph Lauren Corporation sells apparel through company-owned retail stores.

Assume that the apparel industry average return on total assets is 8.0% and the average return 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.

Expert Solution

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

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.

Formula:

Rate of return on assets=Netincome + Interest expenseAverage total assets

Working notes for determining average total assets are as follows:

Average total assets for fiscal year 3

Average total assets for fiscal year 3}=Opening assets + Closing assets 2=$4,981

Expert Solution

b)

To determine

To determine: Determine return on stockholders’ equity.

Expert Solution

c)

To determine

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

Expert Solution

d)

To determine

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

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Chapter 17 Solutions

Accounting
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