Question

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. 2017 Cash $ 31,600 87,00 112. See 10,55€ 281.000 $523,550 $ 35,250 $32.ee 63, 0 49, see 80.600 52.000 9,200 4.100 22.00 228, Bee $445, eso $ 1.200 Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-tere notes payable secured by mortgages on plant assets Comon stock, 510 par value Retained earnings Total liabilities and equity $129.60 $ 22.500 $ 51. 97, 98,50 151. 161.000 115.95 113. $523,550 5445,5 1,600 161. 27.280 $ 171,200 The company's income statements for the years ended December 31, 2017 and 2016, follow. $75,00 $663.150 For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income Earnings per share 2016 $ 520, $15. 148, 13.ee 235, sae 11. 1954 SZES Evaluate the company's efficiency and profitability by computing the following for 2017 and 2016 Exercise 13-10 Part 1 (1) Profit margin ratio Choose Numerator Profil Margin Ratie Choose Denominator Pront Mari Rata - Progno 2017

Answer 1

Answer to Question 1:

2017:

Profit Margin = Net Income / Sales
Profit Margin = $65,000 / $785,000
Profit Margin = 8.28%

Average Total Assets = ($523,550 + $445,050) / 2
Average Total Assets = $484,300

Total Asset Turnover = Sales / Average Total Assets
Total Asset Turnover = $785,000 / $484,300
Total Asset Turnover = 1.62

Return on Total Assets = Net Income / Average Total Assets
Return on Total Assets = $65,000 / $484,300
Return on Total Assets = 13.42%

2016:

Profit Margin = Net Income / Sales
Profit Margin = $52,625 / $620,000
Profit Margin = 8.49%

Average Total Assets = ($445,050 + $371,200) / 2
Average Total Assets = $408,125

Total Asset Turnover = Sales / Average Total Assets
Total Asset Turnover = $620,000 / $408,125
Total Asset Turnover = 1.52

Return on Total Assets = Net Income / Average Total Assets
Return on Total Assets = $52,625 / $408,125
Return on Total Assets = 12.89%

Answer to Question 2:

2017:

Average Common Stockholders’ Equity = ($162,500 + $153,126 + $162,500 + $106,915) / 2
Average Common Stockholders’ Equity = $292,520.50

Return on Common Stockholders’ Equity = (Net Income - Preferred Dividend) / Average Common Stockholders’ Equity
Return on Common Stockholders’ Equity = ($36,724 - $0) / $292,520.50
Return on Common Stockholders’ Equity = 12.55%

Price-Earnings Ratio = Market Price per share / Earnings per share
Price-Earnings Ratio = $31.00 / $2.26
Price-Earnings Ratio = 13.72

Dividend Yield = Cash Dividend per share / Market Price per share
Dividend Yield = $0.22 / $31.00
Dividend Yield = 0.71%

2016:

Average Common Stockholders’ Equity = ($162,500 + $106,915 + $162,500 + $90,872) / 2
Average Common Stockholders’ Equity = $261,393.50

Return on Common Stockholders’ Equity = (Net Income - Preferred Dividend) / Average Common Stockholders’ Equity
Return on Common Stockholders’ Equity = ($31,593 - $0) / $261,393.50
Return on Common Stockholders’ Equity = 12.09%

Price-Earnings Ratio = Market Price per share / Earnings per share
Price-Earnings Ratio = $29.00 / $1.94
Price-Earnings Ratio = 14.95

Dividend Yield = Cash Dividend per share / Market Price per share
Dividend Yield = $0.11 / $29.00
Dividend Yield = 0.38%