Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,200			$	35,750		$	38,200
Accounts receivable, net			88,700				63,000			50,500
Merchandise inventory			111,500				81,400			53,500
Prepaid expenses			11,000				9,450			5,100
Plant assets, net			281,000				251,500			234,000
Total assets		$	524,400			$	441,100		$	381,300
Liabilities and Equity
Accounts payable		$	129,600			$	75,750		$	50,200
Long-term notes payable secured by mortgages on plant assets			97,500				100,000			83,000
Common stock, $10 par value			163,000				163,000			163,000
Retained earnings			134,300				102,350			85,100
Total liabilities and equity		$	524,400			$	441,100		$	381,300

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				$	785,000					$	600,000
Cost of goods sold	$	463,150					$	384,000
Other operating expenses		243,350						144,000
Interest expense		12,100						12,800
Income tax expense		9,500						8,925
Total costs and expenses					728,100						549,725
Net income				$	56,900					$	50,275
Earnings per share				$	3.49					$	3.08

For both the Current Year and 1 Year Ago, compute the following ratios:

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

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

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

Requirement: 1a = | Numerator Net Income 56900 50275 Profit margin 1 Denominator 1 Net sales / 785000 600000 Profit margin Profit margin % 7.2 - 8.4 % Current Year 1 Year ago Numerator Net Sales 785000 600000 Total Assets Turn over 1 Denominator 7 Avg Total Assets 1 482750 411200 = | Total Assets Turn over = | Total Assets Turn over 1.6 times times Current Year 1 Year ago 1.5 Return on Total Assets Numerator 1 Denominator Net income 7 Avg Total assets 56900 / 482750 50275 1 411200 = Return on Total Assets = | Return on Total Assets 11.8 % 12.2 Current Year 1 Year ago Requirement: 1b Worsen