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Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	31,400			$	35,250		$	37,400
Accounts receivable, net			89,500				63,000			50,500
Merchandise inventory			111,500				80,400			54,000
Prepaid expenses			10,400				9,200			5,400
Plant assets, net			277,000				258,000			235,000
Total assets		$	519,800			$	445,850		$	382,300
Liabilities and Equity
Accounts payable		$	130,000			$	76,000		$	50,200
Long-term notes payable secured by mortgages on plant assets			97,500				98,000			82,400
Common stock, $10 par value			160,500				160,500			160,500
Retained earnings			131,800				111,350			89,200
Total liabilities and equity		$	519,800			$	445,850		$	382,300

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					$	630,000
Cost of goods sold	$	435,000					$	403,200
Other operating expenses		224,750						157,500
Interest expense		11,200						12,600
Income tax expense		9,300						8,525
Total costs and expenses					680,250						581,825
Net income				$	44,750					$	48,175
Earnings per share				$	2.79					$	3.00

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

Profit margin ratio.

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

Did profit margin improve or worsen in the Current Year versus 1 Year Ago?

	Profit margin

(2) Total asset turnover.

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

(3-a) Return on total assets.
(3-b) Based on return on total assets, did Simon's operating efficiency improve or worsen in the Current Year versus 1 Year Ago?

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: / = %

Based on return on total assets, did Simon's operating efficiency improve or worsen in the Current Year versus 1 Year Ago?

	Return on total assets

Answer 1

Solution: 1a) Profit Margin Ratio Choose Numerator: Choose Denominator: = Profit Margin Ratio Net income Net sales = Profit margin ratio Current Year: 44750/ 725000 = 6.17 % 1 Year Ago: 48175/ 630000 = 7.65 % 1b) worsen 2) Asset Turnover Choose Numerator: I/Choose Denominator: = Total Asset Turnover Net sales Current Year: 1 Year Ago: | Average total assets 1= Total asset turnover 725000/1 482825 = 1.50 times 630000/ 414075 = 1.52 times 3a) Return On Total Assets Choose Numerator: / Choose Denominator: 1= Return On Total Assets Net income Current Year: 1 Year Ago: /Average total assets = Return on total assets 44750/1 482825 = 9.27 % 48175/ 414075 = 11.63 % 3b) Worsen