Question

92 Financial Statement Analysis 7-22 Analyzing profitability Inc.'s comparative income comparative income statement follows. The 2015 data are given as nceded. 1.2017 11.6% VARSITY, INC Comparative Income Statement Years Ended December 31, 2017 and 2016 Dollars in thousands Net Sales Cost of Goods Sold Selling and Administrative Expenses nterest Expense income Tax Expense Net Income 2017 2016 2015 S 185,000 $ 153,000 96,000 87,000 46,500 39,500 9,50010,500 9,000 $ 21,500 S 7,000 11,500 Additional data Total Assets Common Stockholders' Equity Preferred Dividends Common Shares Outstanding During the Year 200,000 $188,000 $ 169,000 80,000 92,000 2,000 20,000 87,500 2,000 20,000 10,000 Requirements 1. Calculate the profit margin ratio for 2017 and 2016 2. Calculate the rate of return on total assets for 2017 and 2016. 3. Calculate the asset turnover ratio for 2017 and 2016. 4. Calculate the rate of return on common stockholders' equity for 2017 and 2016. 5. Calculate the earnings per share for 2017 and 2016. 6 Calculate the 2017 dividend payout on common stock. Assume dividends per share for common stock are equal to $0.75 per share. Did the company's operating performance improve or deteriorate during 2017

Answer 1

Ans.1	Profit margin = Net income / Net sales * 100
	2017	21500 / 185000 * 100		11.62%
	2016	7000 / 153000 * 100		4.58%
Ans.2	Rate of Return on total assets = Net income / Average operating assets * 100
	2017	21500 / 194000 * 100		11.08%
	2016	7000 / 178500 * 100		3.92%
	Average operating assets = (Beginning assets + Ending assets) / 2
	2017	(188000 + 200000) / 2		194000
	2016	(169000 + 188000) / 2		178500
Ans.3	Asset turnonver = Net sales / Average operating assets
	2017	185000 / 194000		0.95	times
	2016	153000 / 178500		0.86	times
Ans.4	Rate of return on Common stockholders' equity = (Net income - Preference dividend) / Average common Equity * 100
	2017	(21500 - 2000) / 89750 * 100		21.73%
	2016	(7000 - 2000) / 83750 * 100		5.97%
	*Average common equity = (Beginning common equity + Ending common equity) / 2
	2017	(87500 + 92000) / 2		89750
	2016	(80000 + 87500) / 2		83750