INTERMEDIATE 9. Gulf Controls, Inc., has a net profit margin of 10 percent and earnings after taxes of $600,000. Its current balance sheet follows:

Current assets $1,800,000

Fixed assets 2,200,000

Total assets $4,000,000

Current liabilities $ 600,000

Long-term debt 1,000,000

Common stock 500,000

Retained earnings 1,900,000

Total liabilities and stockholders’ equity $4,000,000

a. Calculate Gulf ’s return on stockholders’ equity.

b. The industry average ratios are as follows:

Net profit margin 6%

Total asset turnover 2.5 times

Equity multiplier 1.4 times

Compare Gulf Controls with the average firm in the industry. What is the source of the major differences between the Gulf and the industry average ratios?