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 / = %

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 %