# ANALY SIS OF PROFITABILITY Based on the financial statement data in Exercise 24-1B, compute the following profitability measures for 20-2 (round all calculations to two decimal places): (a) Profit margin ratio (b) Return on assets (c) Return on common stockholders’ equity (d) Earnings per share of common stock

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
Publisher: Cengage Learning,
ISBN: 9781337794756

Chapter
Section

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
Publisher: Cengage Learning,
ISBN: 9781337794756
Chapter 24, Problem 3SEB
Textbook Problem
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## ANALY SIS OF PROFITABILITY Based on the financial statement data in Exercise 24-1B, compute the following profitability measures for 20-2 (round all calculations to two decimal places):(a) Profit margin ratio(b) Return on assets(c) Return on common stockholders’ equity(d) Earnings per share of common stock

(a)

To determine

Compute the profit margin for the period 20-2.

### Explanation of Solution

Profitability ratios:

Profitability ratio shows the ability of the company to earn income by operating proficiently. These ratios focus upon company’s’ profit margin and the link between key income statement and balance sheet amounts. Profit margin, return-on-assets, return on common stockholders’ equity, earnings per share of common stock are the profitability ratios.

Calculate profit margin ratio for the period 20-2.

Profit margin ratio =Net incomeNet sales<

(b)

To determine

Compute the return on assets for the period 20-2.

(c)

To determine

Compute return on common stockholders’ equity for the period 20-2.

(d)

To determine

Compute earnings per share of common stock during the period 20-2.

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