Question: Linley Company reports the following information (in millions) during a recent year: net sales, $11,408.5; net earnings, $264.8; 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.
(b) Prove mathematically how the profit margin and asset turnover work together to explain return on assets, by showing the appropriate calculation.
(c) Linley Company owns Northgate (grocery), Linley Theaters, Oz Drugstores, and Ransome (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.