Calculate keystones return on stockholders equity

Assignment Help Financial Management

Reference no: EM131339982

Keystone Resources has a net profit margin of 8 percent and earnings after taxes of $2 million. Its current balance sheet is as follows:

Current Assets	$ 6,000,000	Current liabilities	$ 3,500,000
Fixed assets	10,000,000	Long-term debt	5,500,000
Total Assets	$16,000,000	Common stock	2,000,000
		Retained earnings	5,000,000
		Total liabilities and Stockholder's equity	$ 16,000,000
		Total liabilities and Stockholder's equity	$ 16,000,000

a. Calculate Keystone's return on stockholder's equity.

b. Industry average ratios are

Net Profit margin : 10%
Total asset turnover : 2.0 times
Equity multiplier : 1.5 times

What does a comparison of Keystone to these averages indicate about the firm's strengths and weaknesses?

c. Keystone has inventories of $3.2 million. Compute the firm's quick ratio.

Reference no: EM131339982

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