Question

Tyler Toys, Inc.
Income Statement for Years Ending December 31, 2013 and 2014
	2014	2013
Revenue	$14,147,783	$13,567,385
Cost of goods sold	$-8,448,339	$-8,131,598
Selling, general, and administrative expenses	$-997,405	$-981,777
Depreciation	$-1,498,996	$-1,472,330
EBIT	$3,203,043	$2,981,680
Interest expense	$-376,836	$-355,857
Taxes	$-1,073,959	$-997,813
Net income	$1,752,248	$1,628,010

Tyler Toys, Inc.
Balance Sheet as of December 31, 2013 and 2014
ASSETS	2014	2013	LIABILITIES	2014	2013
Current assets			Current liabilities
Cash	$191,079	$187,689	Accounts payable	$1,545,537	$1,456,598
Investments	$180,682	$120,303	Short-term debt	$312,679	$332,000
Accounts receivable	$668,721	$630,910	Total current liabilities	$1,858,216	$1,788,598
Inventory	$587,558	$564,837	Long-term liabilities
Total current assets	$1,628,040	$1,503,739	Debt	$7,285,436	$6,603,166
Long-term assets			Other liabilities	$1,462,886	$1,345,793
Investments	$3,054,998	$2,827,292	Total liabilities	$10,606,538	$9,737,557
Plant, property, and equipment	$8,497,368	$8,480,129	OWNERS’ EQUITY
Goodwill	$348,476	$346,686	Common stock	$1,457,797	$1,454,449
Intangible assets	$1,157,304	$957,363	Retained earnings	$2,621,851	$2,923,203
			Total owners’ equity	$4,079,648	$4,377,652
			TOTAL LIABILITIES
TOTAL ASSETS	$14,686,186	$14,115,209	AND OWNERS’ EQUITY	$14,686,186	$14,115,209

Financial​ ratios: Profitability. The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window: (popup window info shown above). 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?

What is the profit margin for​ 2014?

_____% (Round to two decimal​ places.)

What is the profit margin for​ 2013?

______% (Round to two decimal​ places.)

What is the return on assets for​ 2014?

______​% (Round to two decimal​ places.)

What is the return on assets for​ 2013?

_____% (Round to two decimal​ places.)

What is the return on equity for​ 2014?

_____​% (Round to two decimal​ places.)

What is the return on equity for​ 2013?

______% ​(Round to two decimal​ places.)

Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the​ shareholders?  ​(Select the best​ response.)

A. These ratios indicate a somewhat weak firm performance for the equity holders with an ROE of over 42.95% for 2014.

B.These ratios indicate a somewhat strong firm performance for the equity holders with an ROE of over 42.95% for 2014.

C.These ratios indicate a somewhat strong firm performance for the equity holders with an ROE of over 42.95% for 2013.

D.These ratios indicate a somewhat weak firm performance for the equity holders with an ROE of over 42.95% for 2013.

Answer 1

Profit margin = Net income / sales

2013 profit margin = 1,628,010 / 13,567,385 = 12.00%

2014 profit margin = 1,752,248 / 14,147,783 = 12.39%

Return on assets = Net income / total assets

2013 return on assets = 1,628,010 / 14,115,209 = 11.53%  

2014 return on assets = 1,752,248 / 14,686,186 = 11.93%

Return on equity = Net income / shareholder's equity

2013 return on equity = 1,628,010 / 4,377,652 = 37.19%  

2014 return on equity = 1,752,248 / 4,079,648 = 42.95%

These ratios indicate a somewhat strong firm performance for the equity holders with an ROE of over 42.95% for 2014.