Question

Exercise 13-10 Efficiency and profitability analysis LO P3

[The following information applies to the questions displayed below.]

Simon Company’s year-end balance sheets follow.

At December 31 2017 2016 2015 Assets Cash $32,200 $ 36,250 $ 38,000 63,000 82,000 9,450 251,000 Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net 89,700 113,000 10,300 50,500 55,000 5,400 282,000 229,000 $527,200 $441,700 $377,900 Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings $130,000 $ 75,250 $ 51,400 82,000 160,500 84,000 97,500 160,500 139,200 99,250 160,500 106,700 $ 377,900 Total liabilities and equity $527,200 $441,700 The company's income statements for the years ended December 31, 2017 and 2016, follow. For Year Ended December 31 2017 2016 $715,000 Sales $540,000 $421,850 221,650 12,200 9,550 $334,800 129,600 12,600 8,700 Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses 665,250 485,700 $ 49,750 $ 54,300 Net income 3.10 3.38 Earnings per share Evaluate the company's efficiency and profitability by computing the following for 2017 and 2016 Exercise 13-10 Part 1 (1) Profit margin ratio Profit Margin Ratio IChoose Denominator: Choose Numerator: Profit Margin Ratio Profit margin ratio - 2017 / - 2016 / - I I I Exercise 13-10 Part 2 (2) Total asset turnover. Total Asset Turnover /Choose Denominator: Choose Numerator: Total Asset Turnover Total asset turnover 2017 times 2016 times Exercise 13-10 Part 3 (3) Return on total assets. Return On Total Assets Choose Denominator: Choose Numerator: Return On Total Assets / Return on total assets 2017 % 2016 Exercise 13-10 Part 1 (1) Profit margin ratio Profit Margin Ratio IChoose Denominator: Profit Margin Ratio Choose Numerator: / Profit margin ratio % 2017 = / % 2016 Exercise 13-10 Part 2 (2) Total asset turnover. Total Asset Turnover IChoose Denominator: Choose Numerator: Total Asset Turnover / Total asset turnover - 2017 times 16 times Exercise 13-10 Part 3 (3) Return on total assets Return On Total Assets IChoose Denominator: Choose Numerator: Return On Total Assets / Return on total assets 2017 / - 2016 / -

Answer 1

1)

Profit Margin Ratio
	Choose Numerator	/	Choose Denominator	=	Profit Margin Ratio
	Net Income	/	sales	=	Profit Margin Ratio
2017	$49750	/	$715000	=	6.96	%
2016	$54300	/	$540000	=	10.06	%

2)

Total Asset Turnover
	Choose Numerator	/	Choose Denominator	=	Total asset Turnover
	Net Sale	/	Average Total Asset	=	Total asset Turnover
2017	$715000	/	$484450	=	1.48	times
2016	$540000	/	$409800	=	1.32	times

3)

Return on Total Asset
	Choose Numerator	/	Choose Denominator	=	Return on Total asset
	Net Income	/	Average Total Asset	=	Return on Total asset
2017	$49750	/	$484450	=	10.27	%
2016	$54300	/	$409800	=	13.25	%