# Question

The following summary financial statistics were obtained from the 2012 Otago Bay Marine Motors (OBMM) annual report.

2012

($ in millions)

Sales revenue ......... 179.3

Total assets ........... 136.3

Net earnings ......... 20.2

Shareholdersâ€™ equity ....... 109.6

a. Use the profit margin and asset turnover to compute the 2012 ROA for OBMM. Now introduce the equity multiplier to find ROE.

b. Use the summary financial information from the 2013 OBMM financial statements to compute the 2013 ROA and ROE. Use the same procedures to calculate these measures as you did in part a.

c. On the basis of your calculations, describe how each of the 3 components (profit margin, asset turnover, and leverage) contributed to the change in OBMMâ€™s ROA and ROE between 2012 and 2013. Which component(s) contributed the most to the change in ROA? Which contributed the most to the change in ROE?

d. Generally speaking, do you think that these changes are fundamentally healthy for the company?

2012

($ in millions)

Sales revenue ......... 179.3

Total assets ........... 136.3

Net earnings ......... 20.2

Shareholdersâ€™ equity ....... 109.6

a. Use the profit margin and asset turnover to compute the 2012 ROA for OBMM. Now introduce the equity multiplier to find ROE.

b. Use the summary financial information from the 2013 OBMM financial statements to compute the 2013 ROA and ROE. Use the same procedures to calculate these measures as you did in part a.

c. On the basis of your calculations, describe how each of the 3 components (profit margin, asset turnover, and leverage) contributed to the change in OBMMâ€™s ROA and ROE between 2012 and 2013. Which component(s) contributed the most to the change in ROA? Which contributed the most to the change in ROE?

d. Generally speaking, do you think that these changes are fundamentally healthy for the company?

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