Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,935			$	38,498		$	38,545
Accounts receivable, net			89,200				62,800			51,100
Merchandise inventory			114,000				85,000			51,000
Prepaid expenses			10,606				10,106			4,283
Plant assets, net			295,220				270,804			233,072
Total assets		$	541,961			$	467,208		$	378,000
Liabilities and Equity
Accounts payable		$	138,997			$	81,327		$	51,393
Long-term notes payable secured by mortgages on plant assets			104,945				110,682			86,044
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			135,519				112,699			78,063
Total liabilities and equity		$	541,961			$	467,208		$	378,000

The company’s income statements for the Current Year and 1 Year Ago, follow. Assume that all sales are on credit:

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	704,549					$	555,978
Cost of goods sold	$	429,775					$	361,386
Other operating expenses		218,410						140,662
Interest expense		11,977						12,787
Income tax expense		9,159						8,340
Total costs and expenses					669,321						523,175
Net income				$	35,228					$	32,803
Earnings per share				$	2.17					$	2.02

Profit margin ratio.

	Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit Margin Ratio / = Profit margin ratio Current Year: / = % 1 Year Ago: / = %

Improved or Worsen?

	Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover / = Total asset turnover Current Year: / = times 1 Year Ago: / = times

Return on total assets

	Return On Total Assets Choose Numerator: / Choose Denominator: = Return On Total Assets / = Return on total assets Current Year: / = % 1 Year Ago: / = %

• Required 3A

Imroved or Worsen

Answer 1

روا 1 Current Year: Profit margin Ratio Choose Numerator / Choose Denominator Profit margin Ratio Net Income net sales -Profit margin Ratio $ 35,228 $704,549 5.0 I year Ago: $32,803 $555,978 = 5.9 db) Profit margin Ratio I worsen Las Total Choose Numerator Net sales Year: $704,549 1 Year $555,978 Asset Turnover Total Asset Turnover / Choose Denominator = 10 1 Average Total Assets = Total Asset Turnover 1 $504,585 = 1.4 times 1 $422, 604 = 1.3 times Current (2b) Total Asset Turnover improved calculation: Average total Assets = (Beginning Total Assets & Ending Total Assets) : 27 Current year: Average Total Assets = {($ 467,208 + $541,961) + 2] = $1,009, 169 = 2 = $504,584.5 or $504,585

1 Year Ago: Average total Assets = [($378,000+ $467,208) : 2) = $845,208 + 2 = $422,604 3a) Return on Total Assets Choose Numerator: / Choose Denominator: = 4 Net Income 1 Average Total Assets = Assets $ 35,228 IL & 504,585 7.0 7. 1 year $32,003 1 $422,604 = 7.8 % Return on Total Assets Return on Total rent e Year 3b) Return on Total Assets worsen Note: Average total Assets are calculated above in part (2a).