Question

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

The total assets for this company equal \(80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.

e. Return on assets (investment).

Times mirror and glass company
Sales	\)126,000
Less: Cost of goods sold	93,000
Gross profit	\(33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\)18,000
Less: Interest expenses	3,000
Earning before taxes	\(15,000
Less: Taxes (30%)	4,500
Earning after taxes	\)10,500

*equal income before interest and taxes

Short answer

Return on assets of the company is 13.125%.

Step-by-step solution

Profit margin

Profit margin is a profitability ratio which is used in the Du Pont analysis to compute the return on assets of a corporation. It has two components; net profits and net sales.

Calculation of Return on assets as per DuPont equation

$\begin{array}{rcl}\mathrm{Return}\mathrm{on}\mathrm{assets}& =& \mathrm{Profit}\mathrm{margin}\times \mathrm{Asset}\mathrm{turnover}\\ & =& 8.33\%\times 1.575\\ & =& 13.125\%\end{array}$