Question

Financial​ ratios: Profitability.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window:  Calculate the profit​ margin, return on​ assets, and return on equity for 2013 and 2014 for Tyler Toys. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the​ shareholders?

Tyler Toys, Inc.
Income Statement for Years Ending December 31, 2013 and 2014
	2014	2013
Revenue	$14,146,748	$13,567,954
Cost of goods sold	$-8,447,154	$-8,132,993
Selling, general, and administrative expenses	$-997,557	$-981,060
Depreciation	$-1,498,262	$-1,471,795
EBIT	$3,203,775	$2,982,106
Interest expense	$-376,608	$-354,689
Taxes	$-1,074,323	$-998,418
Net income	$1,752,844	$1,628,999

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Tyler Toys, Inc.
Balance Sheet as of December 31, 2013 and 2014
ASSETS	2014	2013	LIABILITIES	2014	2013
Current assets			Current liabilities
Cash	$190,490	$186,139	Accounts payable	$1,546,501	$1,456,625
Investments	$180,227	$120,022	Short-term debt	$311,087	$332,334
Accounts receivable	$667,584	$630,762	Total current liabilities	$1,857,588	$1,788,959
Inventory	$587,365	$563,523	Long-term liabilities
Total current assets	$1,625,666	$1,500,446	Debt	$7,285,006	$6,604,416
Long-term assets			Other liabilities	$1,462,584	$1,346,061
Investments	$3,053,573	$2,828,209	Total liabilities	$10,605,178	$9,739,436
Plant, property, and equipment	$8,497,811	$8,480,129	OWNERS’ EQUITY
Goodwill	$348,496	$346,168	Common stock	$1,458,831	$1,454,931
Intangible assets	$1,158,540	$957,351	Retained earnings	$2,620,077	$2,917,936
			Total owners’ equity	$4,078,908	$4,372,867
			TOTAL LIABILITIES
TOTAL ASSETS	$14,684,086	$14,112,303	AND OWNERS’ EQUITY	$14,684,086	$14,112,303

​ Right-click on the table and select Copy to Clipboard and then​ right-click the highlighted texts in the popup dialogue box and select Copy

in order to paste its contents into a

spreadsheet.

                                                                                                                                                                    

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Answer 1

Profit margin = Net income/Sales*100

2014: Profit margin = 1,752,844/14,146,748 *100=12.39%

2013: Profit margin = 1,628,999/13,567,954*100=12%

Return on assets :

Return on assets = Net income/Total Assets*100

2014: Return on assets =1,752,844/14,684,086*100=11.94%

2013: Return on assets = 1,628,999/14,112,303*100=11.54%

Return on equity:

Return on equity = Net income/Shareholders equity*100

2014: Return on equity = 1,752,844/4,078,908*100=42.97%

2013: Return on equity = 1,628,999/4,372,867*100=37.25%

When you compare the all 3 ratios the ratios have shown growth from last year to current year so there won't be any concern for managers or shareholders.