5. Raffles Apparel Mart
• Don’t waste time calculating the net profit margin
and the asset turnover margins as they both
multiply out to become the Return on Assets
ratio
• Return on Assets = net profit / total assets=
7983 / 76 500
• Financial Leverage = total assets / net worth =
76 500 / 35 879
• Therefore return on net worth = net profit /net
worth = 7983 / 35 879 = 22.25%
6. Singapore Status Clothiers
• Return on Assets = net profit / total
assets= 1679 / 9400
• Financial Leverage = total assets / net
worth = 9400 / 6044
• Therefore return on net worth = net profit
/net worth = 1679 / 6044 = 27.78%
• Therefore SSC has a higher return
8. Need to work out the Return on Assets ratios:
X
=
Return on
Assets Ratios
9. Computations of Return on Net Worth
Company Net profit Asset Return Financial Return
margin Turnover on Leverage on Net
Assets Worth
SRS 3.4 0.65 2.21 5.52 12.2
KC 2.7 2.31 6.24 2.52 15.7
WG 3.9 3.11 12.1 2.27 27.5
ZZS 2.3 2.84 6.5 2.98 19.5
MDB 2.8 1.24 3.47 2.42 8.4
10. ( c ) If SRS were to raise its asset turnover ratio to
the average of the four retailers:
• Average asset turnover ratio of the other
four retailers = (2.31+3.11+2.84+1.24) / 4
= 2.38
• Therefore the revised Return on Net Worth
– Return on assets = 2.38 x 3.4 = 8.1
– Financial leverage = 5.52 (no change)
– Therefore RONW = 8.1 x 5.52 = 44.67%
11. ( d ) If ZZS achieve same net profit margin as WG
• Same net profit margin as WG = 3.9
• Therefore the revised Return on Net Worth
– Return on assets = 3.9 x 2.84 = 11.08
– Financial leverage = 2.98 (no change)
– Therefore RONW = 11.08 x 2.98 = 33.02%
12. ( e ) If MDB were to raise its financial leverage to
the same level as KCS
• New Financial Leverage = 2.52
• Therefore the revised Return on Net
Worth= 3.47 x 2.52 = 8.75%
