Calculation of Ratios and Analysis of Accounting Practices

Running head: ACCOUNTING FOR MANAGERS
Accounting practices

Accounting for managers 1
Question 1 (A)
Calculation of Ratios
 Return on Assets
ROA: Net Income/ Average total assets
$4,362 / $28,990 = 15%
Average total assets = Opening Assets + Closing Assets
2
($29935+$28045)/2 = $28,990
Industry Average = 22%
 Return on Equity
Net income for equity
shareholders
$4,312
Shareholder’s Equity $13,715
ROE 31%
ROE: Net income for equity shareholders/ Shareholder’s equity
($4362-$50) / ($7200+$6515) = 31%
Net income available to equity shareholders = Net income – Preference share dividend
Shareholder’s equity= equity share capital + retained earnings
Industry Average = 20%
 Profit Margin Ratio
Net income $4,362
Average total assets $28,990
ROA 15%

Accounting for managers 2
Net income $4,362
Net Sales $55,000
Profit Margin 8%
Profit Margin = Net income/ Net sales
$4,362 / $55,000 = 8%
Industry Average= 4%
 Earnings per Share
Net profit for equity
shareholders
$4,312
Number of Equity
Shareholders
$7,200
EPS 0.60 or 60 cents
EPS = Profit for equity shareholders/ No. of Equity Shareholders
$4,312 / $7,200 = 0.60
Industry Average= 45 cents
 Price Earnings Ratio
Market price per share $12
Earnings per share $0.60
P/E Ratio 20
Price Earning: MPS / EPS
$12 / $0.60 = 20
Industry Average= 12
 Dividend Yield Ratio