Calculate the profitability ratios

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Reference no: EM13234124

SWA #5, Financial Analysis
The income statement for Western Grain Company, a producer of agricultural products for industrial as well as consumer markets, is shown below. Western Grain's total assets are $4,237.1 million, and its equity is $1,713.4 million.

Consolidated Earnings and Retained Earnings Year Ended December 31

(Millions)

Net Sales $6,295.4
Cost of Goods Sold 2,989.0
Selling & Admin. expense 2,237.5
Operating profit 1,068.9
Interest expense 33.3
Other income (expense), net (1.5)
Earnings before income taxes 1,034.1
Income taxes 353.4
Net earnings 680.7
(Net earnings per share) $2.94

Retained earnings, beg. of year 3,033.9
Dividend paid (305.2)
Retained earnings, end of year $3,509.4

1. Calculate the following profitability ratios:
•profit margin=gross profit/total revenue
•return on assets=net income/total assets
•return on equity=net income/total equity

Remember to show your work and explain what each ratio is telling you. Assuming the industry averages are 12%, 18%, and 25% respectively, explain how Western Grain is performing in its industry?

2. Are profitability ratios the only means of assessing the health of the company? Explain.

Reference no: EM13234124

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