Homework Answers
A. Net Sales in 2011 increased to $ 1,589,150 from $ 1,294,966 in 2010 (an increase of 22% over 2010), which is a positive reflection.
B. Net earnings have increased marginally from $ 137,110 in 2010 to $ 138,204 2011 (an increase of just 0.79% over 2010 net earnings).
C.
| S.No. | Ratio | Formula | Calculation 2011 | 2011 | Calculation 2010 | 2010 |
| 1 | Net profit margin | Net earnings/Sales *100 | 138204/1589150 *100 | 8.70% | 137110/1294966 *100 | 10.59% |
| 2 | Return on assets (using ending assets) | Net income / End of period assets | 138204/1437636 | 0.10 | 137110/1182110 | 0.12 |
| 3 | Total assets turnover (using ending assets) | Net Sales / End of period total assets | 1589150/1437636 | 1.11 | 1294966/1182110 | 1.10 |
| 4 | Du Pont Analysis | ROE = Net profit margin * Total Asset turnover * Equity Multiplier | 8.70%*1.11*1.77 | 17.06% | 10.59%*1.10*1.64 | 19.03% |
| Equity multiplier | Total assets / Shareholders' equity | 1437636/810292 | 1.77 | 1182110/720530 | 1.64 | |
| 5 | Operating income margin | Earnings before int., tax, noncontrolling int. / Net Sales | (263762+18768)/1589150 | 17.78% | (271500+11522)/1294966 | 21.86% |
| 6 | Return on Operating assets (using ending assets) | Net income/Operating assets | 138204/1411686 | 9.79% | 137110/1159666 | 11.82% |
| 7 | Operating asset turnover (using ending assets) | Sales/Operating assets | 1589150/1411686 | 1.13 | 1294966/1159666 | 1.12 |
| 8 | DuPont analysis with operating ratios | Operating income margin*Operating asset turnover*EM | 17.78%*1.13*1.77 | 35.51% | 21.86%*1.12*1.64 | 40.04% |
| 9 | Return on investment (using ending liab. And equity) | Net income / (Shareholders' equity + Debt) | 138204/(209128+810292) | 13.56% | 137110/(212702+720530) | 14.69% |
| 10 | Return on equity (using ending common equity) | Net income / Shareholders' equity | 138204/810292 | 17.06% | 137110/720530 | 19.03% |
D. As can be seen from the above calculations, the profitability of the firm in question has reduced from 2010 to 2011, with net profit margin down from 10.59% to 8.70%, ROA down from 12% to 10%, ROE down from 19.03% to 17.06% (largely on account of lower profit margin). The operating income also represents a downfall from 2010 to 2011.
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