Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,294			$	38,893		$	38,527
Accounts receivable, net			93,598				67,395			53,488
Merchandise inventory			117,682				87,294			55,831
Prepaid expenses			10,295				10,009			4,369
Plant assets, net			299,017				273,035			248,985
Total assets		$	552,886			$	476,626		$	401,200
Liabilities and Equity
Accounts payable		$	136,292			$	78,133		$	51,899
Long-term notes payable secured by mortgages on plant assets			100,824				107,432			87,779
Common stock, $10 par value			162,500				162,500			162,500
Retained earnings			153,270				128,561			99,022
Total liabilities and equity		$	552,886			$	476,626		$	401,200

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				$	718,752					$	567,185
Cost of goods sold	$	438,439					$	368,670
Other operating expenses		222,813						143,498
Interest expense		12,219						13,045
Income tax expense		9,344						8,508
Total costs and expenses					682,815						533,721
Net income				$	35,937					$	33,464
Earnings per share				$	2.21					$	2.06

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

	Debt-To-Equity Ratio Choose Numerator: / Choose Denominator: = Debt-To-Equity Ratio / = Debt-to-equity ratio Current Year: / = to 1 1 Year Ago: / = to 1

	Times Interest Earned Choose Numerator: / Choose Denominator: = Times Interest Earned / = Times interest earned Current Year: / = 0 times 1 Year Ago: / = 0 times

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

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

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

Answer 1

Answer of part 1:

For Current Year:

Total Liabilities = Accounts Payable + Long term notes payable secured by mortgages on plant assets
Total Liabilities = $136,292 + $100,824
Total Liabilities = $237,116

Total Equity = Common Stock + Retained Earnings
Total Equity = $162,500 + $153,270
Total Equity = $315,770

Debt to Equity Ratio = Total Liabilities / Total Equity
Debt to Equity Ratio = $237,116 / $315,770
Debt to Equity Ratio = 0.75

For 1st Year:

Total Liabilities = Accounts Payable + Long term notes payable secured by mortgages on plant assets
Total Liabilities = $78,133 + $107,432
Total Liabilities = $185,565

Total Equity = Common Stock + Retained Earnings
Total Equity = $162,500 + $128,561
Total Equity = $291,061

Debt to Equity Ratio = Total Liabilities / Total Equity
Debt to Equity Ratio = $185,565 / $291,061
Debt to Equity Ratio = 0.64

Answer of Part 2:

For Current Year:

EBIT = Net Income + Income Tax Expense + Interest Expense
EBIT = $35,937 + $9,344 + $12,219
EBIT = $57,500

Times Interest Earned = EBIT / Interest Expense
Times Interest Earned = $57,500 / $12,219
Times Interest Earned = 4.71 times

For 1st Year:

EBIT = Net Income + Income Tax Expense + Interest Expense
EBIT = $33,464 + $8,508 + $13,045
EBIT = $55,017

Times Interest Earned = EBIT / Interest Expense
Times Interest Earned = $55,017 / $13,045
Times Interest Earned = 4.22 times

Answer of Part 3:

For current year:

Profit Margin = Net Income / Sales *100
Profit Margin = $35,937 / $718,752 * 100
Profit Margin = 5%

For 1st Year:

Profit Margin = Net Income / Sales *100
Profit Margin = $33,464 / $567,185 * 100
Profit Margin = 5.90%

Answer of Part 4:

For Current Year:

Average Assets = (Beginning Total Assets + Ending Total Assets) /2
Average Total Assets = ($476,626 + $552,886) /2
Average Total Assets = $514,756

Total Assets Turnover = Sales / Average Total Assets
Total Assets Turnover = $718,752 / $514,756
Total Assets Turnover = 1.40 times

For 1st Year:

Average Assets = (Beginning Total Assets + Ending Total Assets) /2
Average Total Assets = ($401,200 + $476,626) /2
Average Total Assets = $438,913

Total Assets Turnover = Sales / Average Total Assets
Total Assets Turnover = $567,185 / $438,913
Total Assets Turnover = 1.30 times

Answer of Part 5:

For Current Year:

Average Assets = (Beginning Total Assets + Ending Total Assets) /2
Average Total Assets = ($476,626 + $552,886) /2
Average Total Assets = $514,756

Return on Assets =Net Income / Average Total Assets *100
Return on Total Assets = $35,937 / $514,756 * 100
Return on Total Assets = 6.98%

For 1st Year:

Average Assets = (Beginning Total Assets + Ending Total Assets) /2
Average Total Assets = ($401,200 + $476,626) /2
Average Total Assets = $438,913

Return on Assets =Net Income / Average Total Assets *100
Return on Total Assets = $33,464 / $438,913 * 100
Return on Total Assets = 7.62%