Question

Financial Data for Energy Power Co. as of December 31, 2018:

Inventory	$200,000
Long-term debt	300,000
Interest expense	15,000
Accumulated depreciation	440,000
Cash	260,000
Net sales (all credit)	1,500,000
Common stock	800,000
Accounts receivable	225,000
Operating expense (incl. depr. Exp. And taxes)	525,000
Notes payable-current	180,000
Cost of goods sold	940,000
Plant and equipment	1,300,000
Accounts payable	160,000
Marketable securities	90,000
Accrued wages	65,000
Retained earnings	130,000

1. From the information presented in Tables Above, calculate the following ratios for the Springfield Power Co.
   1. operating profit margin
   2. net profit margin
   3. total asset turnover
   4. times-interest-earned

Answer 1

Answer:

Income Statement Net Sales Cost of Goods sold Gross Profit Operating Expenses Operating Income / EBIT Interest Expense Income before Taxes Taxes Net Income 1,500,000 940,000 560,000 525,000 35,000 15,000 20,000 0 20,000

Answer to Part i.
Operating Profit Margin = Operating Income / Net Sales * 100
Operating Profit Margin = $35,000 / $1,500,000 * 100
Operating Profit Margin = 2.33%

Answer to Part ii.
Net Profit Margin = Net Income / Net Sales * 100
Net Profit Margin = $20,000 / $1,500,000 * 100
Net Profit Margin = 1.33%

Answer to Part iii.
Total Assets = Cash + Accounts Receivable + Inventory + Marketable Securities + (Plant and Equipment – Accumulated Depreciation)
Total Assets = $260,000 + $225,000 + $200,000 + $90,000 + ($1,300,000 - $440,000)
Total Assets = $1,635,000

Total Asset Turnover = Net Sales / Total Assets
Total Asset Turnover = $1,500,000 / $1,635,000
Total Asset Turnover = 0.92 times

Answer to Part iv.
Times Interest earned = Operating Income / Interest Expense
Times Interest earned = $35,000 / $15,000
Times Interest earned = 2.33 times