Question

Required information Exercise 13-10 Efficiency and profitability analysis LO P3 [The following information applies to the...

Required information

Exercise 13-10 Efficiency and profitability analysis LO P3

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

At December 31 2017 2016 2015
Assets
Cash $ 32,200 $ 35,000 $ 37,400
Accounts receivable, net 86,100 63,500 50,500
Merchandise inventory 112,000 82,400 53,500
Prepaid expenses 10,550 9,400 4,800
Plant assets, net

278,000

249,500 229,000
Total assets $ 518,850 $ 439,800 $ 375,200
Liabilities and Equity
Accounts payable $ 128,400 $ 74,250 $ 50,400
Long-term notes payable secured by
mortgages on plant assets
95,500 98,250 81,400
Common stock, $10 par value 163,000 163,000 163,000
Retained earnings 131,950 104,300 80,400
Total liabilities and equity $ 518,850 $ 439,800 $ 375,200


The company’s income statements for the years ended December 31, 2017 and 2016, follow.

For Year Ended December 31 2017 2016
Sales $ 745,000 $ 560,000
Cost of goods sold $ 447,000 $ 358,400
Other operating expenses 223,500 128,800
Interest expense 12,200 12,600
Income taxes 9,500 8,500
Total costs and expenses 692,200 508,300
Net income $ 52,800 $ 51,700
Earnings per share $ 3.24 $ 3.17


Evaluate the company's efficiency and profitability by computing the following for 2017 and 2016.

(1) Profit margin ratio

Profit Margin Ratio
Choose Numerator: / Choose Denominator: = Profit Margin Ratio
/ = Profit margin ratio
2017 / = %
2016 / = %

(2) Total asset turnover.

Total Asset Turnover
Choose Numerator: / Choose Denominator: = Total Asset Turnover
/ = Total asset turnover
2017 / = times
2016 / = times

3) Return on total assets.

Return On Total Assets
Choose Numerator: / Choose Denominator: = Return On Total Assets
/ = Return on total assets
2017 / = %
2016 / = %

Homework Answers

Answer #1

1) Profit margin ratio

Profit Margin Ratio
Choose Numerator: / Choose Denominator: = Profit Margin Ratio
Net Income / Sales = Profit margin ratio
2017 $52,800 / $745,000 = 7.09 %
2016 $51,700 / $560,000 = 9.23 %

(2) Total asset turnover.

Total Asset Turnover
Choose Numerator: / Choose Denominator: = Total Asset Turnover
Sales / Average Total Assets = Total asset turnover
2017 $745,000 / ($518,850 + $439,800)/2 = 1.55 times
2016 $560,000 / ($439,800 + $375,200)/2 = 1.37 times

3) Return on total assets.

Return On Total Assets
Choose Numerator: / Choose Denominator: = Return On Total Assets
Net Income / Average Total Assets = Return on total assets
2017 $52,800 /
($518,850 + $439,800)/2
= 11.02 %
2016 $51,700 / ($439,800 + $375,200)/2 = 12.69 %
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