Compute return on equity and return on sales

Question

Problem: DuPont Framework

The numbers below are for Iffy Company and Model Company for the year 2006:

                                                             Iffy                           Model

Cash                                                  $   120                          $    900

Accounts receivable                                  600                             4,500

Inventory                                                480                             6,000

Property, plant, and equipment                3,440                          15,000

Total liabilities                                         3,190                          18,150

Stockholders' equity                                1,450                             8,250

Sales                                                    10,000                          75,000

Cost of goods sold                                   9,200                          66,750

Wage expense                                           700                             5,250

Net income                                                100                             3,000

Question 1.  Compute return on equity, return on sales, asset turnover, and the assets-to-equity ratio for both Iffy and Model.

Question 2. Briefly explain why Iffy’s return on equity is lower than Model’s.