Profitability Ratios

Assume that a company has a profit margin of 6.0 percent, an asset turnover of 3.2 times, and a debt to equity ratio of 50 percent. What are the company’s return on assets and return on equity?

Develop a brief answer to each of the following questions:

1. How do the four basic financial statements meet the third objective of financial reporting?

2. What are some areas that require estimates to record transactions under the matching rule?

3. How can financial information be consistent but not comparable?

4. When might an amount be material to management but not to the CPA auditing the financial statements?