Question

Problem 19-3 Performance Ratios (LO3, CFA6)

You are given the following information for Smashville, Inc.

Cost of goods sold:	$154,000
Investment income:	$1,800
Net sales:	$287,000
Operating expense:	$38,000
Interest expense:	$7,400
Dividends:	$13,000
Tax rate:	21	%

Current liabilities:	$20,000
Cash:	$21,000
Long-term debt:	$30,000
Other assets:	$42,000
Fixed assets:	$123,000
Other liabilities:	$5,000
Investments:	$38,000
Operating assets:	$35,000

  

Calculate the gross margin, the operating margin, return on assets, and return on equity. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Answer 1

Net sales	287000
(-) Cost of goods sold	154000
Gross profit	133000
(-) Operating expense	38000
Operating income	95000
(+) Investment income	1800
(-) Interest expense	7400
Earnings before tax	89400
(-) Tax @ 21%	18774
Net income	70626

Fixed assets	123000
Cash	21000
Other assets	42000
Investment	38000
Total assets	224000

Total assets	224000
(-) Current liabilities	20000
(-) Long term debt	30000
(-) Other liabilities	5000
Total equity	169000

Gross margin = Gross profit / Net sales = 133000/ 287000 =	46.34%
Operating margin = Operating income / Net sales = 95000 / 287000 =	33.10%
Return on assets = Net income / Total assets = 70626 / 224000 =	31.53%
Return on equity = Net income / Total equity = 70626 / 169000 =	41.79%