Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,200			$	36,500		$	37,800
Accounts receivable, net			87,300				64,000			49,000
Merchandise inventory			111,000				81,200			54,000
Prepaid expenses			10,700				9,250			4,400
Plant assets, net			279,000				258,500			231,000
Total assets		$	520,200			$	449,450		$	376,200
Liabilities and Equity
Accounts payable		$	128,400			$	73,750		$	50,600
Long-term notes payable secured by mortgages on plant assets			97,500				101,500			82,400
Common stock, $10 par value			162,000				162,000			162,000
Retained earnings			132,300				112,200			81,200
Total liabilities and equity		$	520,200			$	449,450		$	376,200

The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	725,000					$	600,000
Cost of goods sold	$	449,500					$	378,000
Other operating expenses		232,000						150,000
Interest expense		11,100						13,000
Income tax expense		9,350						9,000
Total costs and expenses					701,950						550,000
Net income				$	23,050					$	50,000
Earnings per share				$	1.42					$	3.09

For both the Current Year and 1 Year Ago, compute the following ratios:

(1-a) Profit margin ratio.
(1-b) Did profit margin improve or worsen in the Current Year versus 1 Year Ago?

Complete this question by entering your answers in the tabs below.

• Required 1A
• Required 1B

Profit margin ratio.

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

Answer 1

1 a

	Profit Margin Ratio
	Net Income	/	Net Sales	=	Profit margin
Current Yr	23,050.00	/	725,000.00	=	3.18%
1 Yr Ago	50,000.00	/	600,000.00	=	8.33%

1 b. Profit margin is worsen in the Current Year by 5.15% (8.33% - 3.18%) compared to 1 Year Ago.