Question

Financial​ ratios: Profitability.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window:   LOADING.... 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	$14,146,613	$13,566,691
Cost of goods sold	$-8,448,105	$-8,132,665
Selling, general, and administrative expenses	$-998,754	$-981,352
Depreciation	$-1,498,337	$-1,471,900
EBIT	$3,201,417	$2,980,774
Interest expense	$-375,368	$-354,828
Taxes	$-1,073,899	$-997,859
Net income	$1,752,150	$1,628,087

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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	$190,970	$187,353	Accounts payable	$1,546,356	$1,455,367
Investments	$180,726	$120,976	Short-term debt	$312,678	$333,402
Accounts receivable	$668,450	$630,106	Total current liabilities	$1,859,034	$1,788,769
Inventory	$588,955	$563,816	Long-term liabilities
Total current assets	$1,629,101	$1,502,251	Debt	$7,286,113	$6,603,058
Long-term assets			Other liabilities	$1,463,425	$1,346,923
Investments	$3,054,448	$2,828,742	Total liabilities	$10,608,572	$9,738,750
Plant, property, and equipment	$8,497,863	$8,480,254	OWNERS’ EQUITY
Goodwill	$348,622	$346,953	Common stock	$1,458,131	$1,454,386
Intangible assets	$1,157,042	$956,662	Retained earnings	$2,620,373	$2,921,726
			Total owners’ equity	$4,078,504	$4,376,112
			TOTAL LIABILITIES
TOTAL ASSETS	$14,687,076	$14,114,862	AND OWNERS’ EQUITY	$14,687,076	$14,114,862

Answer 1

Profit Margin = Net Income/Net Sales

Return on Assets = Net Income/Total Assets

Return on Equity = Net Income/Total Shareholder's

Particulars	2013	2014	% reduction
Profit Margin	12.39%	12.00%	3.11%
Return on Assets	11.93%	11.53%	3.31%
Return on Equity	42.96%	37.20%	13.40%

Although Profit Margin and Return on Assets are reduced by only 3%, still management should be concerned about falling Profit margin and return on assets.

Return on Equity has taken the biggest toll of reduction of 13.4%, it should be a grave concern for equity owner's