Stoney Mason, Inc., has sales of $6 million, a total asset turnover ratio of 6 for the

Question:

Stoney Mason, Inc., has sales of $6 million, a total ratio of 6 for the year, and net profits of $120,000.
a. What is the company's return on assets or earning power?
b. The company is considering the installation of new point-of-sales cash registers throughout its stores. This equipment is expected to increase efficiency in inventory control, reduce clerical errors, and improve record keeping throughout the system. The new equipment will increase the investment in assets by 20 percent and is expected to increase the net profit margin from 2 to 3 percent. No change in sales is expected. What is the effect of the new equipment on the return on assets ratio or earning power?
Asset Turnover
Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.