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Net Profit Margin, Total Asset Turnover, Financial Leverage Multiplier And Return on Equity Calculation

Question

PSU Manufacturing Inc. has the following financial statements data for 2012.

Income Statement
Sales                           $102,500
Cost of Goods                $50,000
SG & E Expenses            $35,000
EBIT                              $17,000
Interest Expenses             $2,500
Taxes                              $6,000
Net Income                      $9,000

Balance Sheet
Cash                              $40,000
Fixes Assets                    $55,000
Total Assets                    $95,000
Accounts Payable            $12,000
Long-term Debt              $25,000
Retained Earnings           $28,000
Paid-in Common Equity    $30,000

Use the financial information and

a. Compute the firm’s net profit margin, total asset turnover and financial leverage multiplier (also known as the equity multiplier).
b. Explain what each of the three ratios above tell you about the firm’s performance and how they combine to form the firm’s return on equity
c. The financial data for the firm’s major competitors show that on an average a net profit margin of 16%, total asset turnover of 1.25, but comparable leverage. Identify some possible business decisions that the firm could make so that it would be as attractive an investment as its competitors.

Summary

The question belongs to Finance and it is about calculating the firm’s net profit margin, total asset turnover, financial leverage multiplier, return on equity, etc. A comparison with the firm’s major competitors has been given and based on the information, possible business decisions have to be given to the firm regarding attractive investment.

Total Word Count 240

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