Ajax Limited reported the following information (in millions) at December 31, 2012: net sales $14,000; profit $350; total assets at December 31, 2012, $7,200; and total assets at December 31, 2011, $6,800.
Instructions
(a) Calculate the following ratios for the year:
(1) Return on assets,
(2) and (3) profit margin.
(b) By showing the appropriate calculation, prove mathematically how the profit margin and asset turn over work together to explain the return on assets.
(c) On average, the ratio values for Ajax’s competitors are: return on assets 4.5%, 1.5 times, and profit margin 3.0%. Compare these with those of Ajax and determine if Ajax is performing better than the industry.
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