Profitability Ratios East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands). Fiscal Year 3 Fiscal Year 2 Net income $155,800 $80,200 Interest expense 3,200 12,000 Fiscal Year 3 Fiscal Year 2 Fiscal Year 1 Total assets (at end of fiscal year) $2,116,558 $2,013,312 $1,749,954 Total stockholders' equity (at end of fiscal year) 1,157,044 1,134,132 821,966 Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3. a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place. Fiscal Year 3 fill in the blank 1 % Fiscal Year 2 fill in the blank 2 % b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place. Fiscal Year 3 fill in the blank 3 % Fiscal Year 2 fill in the blank 4 % c. The return on stockholders' equity is the return on total assets due to the use of leverage. d. During fiscal Year 3, East Point’s results were compared to the industry average. The return on total assets for East Point was than the industry average. The return on stockholders’ equity was than the industry average. These relationships suggest that East Point has leverage than the industry, on average.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 18E

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Profitability Ratios

East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands).

	Fiscal Year 3	Fiscal Year 2
Net income	$155,800		$80,200
Interest expense	3,200		12,000

	Fiscal Year 3	Fiscal Year 2	Fiscal Year 1
Total assets (at end of fiscal year)	$2,116,558		$2,013,312	$1,749,954
Total stockholders' equity (at end of fiscal year)	1,157,044		1,134,132	821,966

Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3.

a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place.

Fiscal Year 3	fill in the blank 1 %
Fiscal Year 2	fill in the blank 2 %

b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place.

Fiscal Year 3	fill in the blank 3 %
Fiscal Year 2	fill in the blank 4 %

c. The return on stockholders' equity is

the return on total assets due to the

use of leverage.

d. During fiscal Year 3, East Point’s results were

compared to the industry average. The return on total assets for East Point was

than the industry average. The return on stockholders’ equity was

than the industry average. These relationships suggest that East Point has

leverage than the industry, on average.

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