Financial Analysis Holiday Travel Store is a retailer that sells merchandise at a family campground. The company’s most recent income statement and balance sheet are presented below:
|
Holiday Travel Store |
|
|
Sales revenue |
$75,000 |
|
Cost of goods sold |
43,000 |
|
Wages expense |
15,000 |
|
Supplies expense |
3,500 |
|
Utilities expense |
2,000 |
|
Rent expense |
8,000 |
|
Net income |
$3,500 |
|
Holiday Travel Store |
|
|
Assets |
|
|
Cash |
$900 |
|
Merchandise inventory |
7,000 |
|
Equipment |
20,000 |
|
Total assets |
$27,900 |
|
Liabilities and Owners’ Equity |
|
|
Notes payable |
$15,500 |
|
Contributed capital |
10,000 |
|
Retained earnings |
2,400 |
|
Total liabilities and owners’ equity |
$27,900 |
Required
A. Calculate Holiday Travel Store’s return on assets.
B. Explain what the ratio means.
C. What kinds of changes might the owners make if the return on assets is not acceptable?