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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Profitability ratios

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

images

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.

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

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

b)

To determine

To determine: 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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