Hopson Company reports the following information (in millions) during a recent year: net sales, $11,408.5; net earnings, $244.9; total assets, ending, $4,312.6; and total assets, beginning, $4,254.3.
Instructions
(a) Calculate the (1) return on assets, (2) asset turnover, and (3) profit margin ratios.
(b) Prove mathematically how the profit margin and asset turnover ratios work together to explain return on assets, by showing the appropriate calculation.
(c) Hopson Company owns Villas (grocery), Hopson Theaters, Lawton Drugstores, and Urbin (heavy equipment), and manages commercial real estate, among other activities. Does this diversity of activities affect your ability to interpret the ratios you calculated in (a)? Explain.