Question

Using the income statement for Times Mirror and Glass Co., compute the following ratios TIMES MIRROR AND GLASS COMPANY Sales Cost of goods sold Gross profit Selling and administrative expense Lease expense Operating profit* Interest expense Earnings before taxes Taxes (30%) Earnings after taxes *Equals income before interest and taxes. $ 235,000 121,000 $114,000 47,500 15,000 $ 51,500 6,900 $44,600 17,840 $ 26,760

The total assets for this company equal $182,000. Set up the equation for the Du Pont system of ratio analysis.  


c. Compute the profit margin ratio. (Input your answer as a percent rounded to 2 decimal places.)

d. Compute the total asset turnover ratio. (Round your answer to 2 decimal places.)

e. Compute the return on assets (investment). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Answer 1

(c)-Profit Margin Ratio

Profit Margin Ratio = (Net Income / Sales) x 100

= ($26,760 / $235,000) x 100

11.39%

(d)-Total Asset Turnover Ratio

Total Asset Turnover Ratio = Sales / Total Assets

= $235,000 / $182,000

= 1.29 Times

(e)-Return on Assets (Investment)

As per Du Pont system of ratio analysis, Return on Assets (Investment) is calculated as follows

Return on Assets (Investment) = Profit Margin x Total Asset Turnover

= (Net Income / Sales) x (Sales / Total Assets)

= ($26,760 / 235,000) / ($235,000 / $218,000)

= 11.39% x 1.29 Times

=14.70%