Lymen International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings, but offer a complementary fit to its existing product line. Fred Riddick, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Barbara Dyson, the company’s CFO, has provided the following projections based on results with and without the new products.

Without New Products

With New Products

Sales revenue $12,149,200 $16,618,200
Net income $488,900 $885,800
Average total assets $5,282,800 $13,930,400
(a) Compute the company’s return on assets, profit margin, and asset turnover, both with and without the new product line. (Round answers to 0 decimal places, e.g. 2% and asset turnover to 1 decimal place, e.g. 6.2)
Without new products

With new products

Return on assets
International sidering offerings, xut offer compl step up with New Products Sales 2,145.20 Average tel Without new products with now products ej abou: red Riddick, bring. Th producti depart

%

%
Profit margin

%

%
Asset turnover

The computation of the Lymen International Company's return on assets, profit margin, and assets turnover, both with and without the new product line, is as follows:

a) Return on assets = Net Income/Average total assets

Without New Products With New Products

Net income $488,900 $885,800

Average total assets $5,282,800 $13,930,400

= 9% 6%

b) Profit margin = Net Income/ Sales revenue

Without New Products With New Products

Sales revenue $12,149,200 $16,618,200

Net income $488,900 $885,800

= 4% 5%

c) Asset Turnover = Net Sales / Average Total Assets

Without New Products With New Products

Sales revenue $12,149,200 $16,618,200

Average total assets $5,282,800 $13,930,400

= 2.3 x 1.2 x

How useful are accounting ratios?

The accounting ratios above help investors understand the efficiency, profitability, and effectiveness that companies achieve when compared with previous years or with competitors.

For instance, the assets turnover ratio helps investors understand Lymen International Company's effectiveness in using its assets to generate sales.

Data and Calculations:

Without New Products With New Products

Sales revenue $12,149,200 $16,618,200

Net income $488,900 $885,800

Average total assets $5,282,800 $13,930,400

Total assets = $10,565,600 $2,786,0800

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