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 $ 32,400 $ 36,250 $ 38,000 Accounts receivable, 87,000 62,000 50,500 Merchandise inventory 111,000 83,200 54,000 Prepaid expenses 10,350 9,250 5,400 Plant assets, net 276,80 253,500 231,000 Total assets $516,750 $444,200 $378,900 Liabilities and Equity Accounts payable $128,800 $ 73,000 $ 51,400 Long-term notes payable secured by mortgages on plant assets 98,080 108,589 83,800 Common stock, $10 par value 161,000 161,000 161,888 Retained earnings 128,950 199,700 82,700 Total liabilities and equity $516,750 $444,200 $378,900 The company's income statements for the years ended December 31, 2017 and 2016, follow 2017 $715, eee For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income Earnings per share $414,700 214,500 12,000 9,400 2016 $610,000 $384,300 146,400 13,400 8,625 552,725 $ 57,275 $ 3.56 650,600 $ 64,400 Evaluate the company's efficiency and profitability by computing the following for 2017 and 2016.

Answer 1

1. Profit Margin Ratio Year Choose Numerator / Choose Denominator Net Income Sales 2017 $64,400 $7,15,000 2016 $57,275 / $6,10,000 = Profit Margin Ratio Profit Margin Ratio 9.01% 9.39% 2. Total Asset Turnover Year Choose Numerator / Choose Denominator Total Asset Turnover Sales / Average Total Assets (*) = | Total Asset Turnover $7,15,000 $4,80,475 1.49 times 2016 $6,10,000 / $4,11,550 = 1.48 times 2017 3. Return on Total Asset Year Choose Numerator / Choose Denominator Return on Total Asset Net Income T/Average Total Assets (*) = | Return on Total Asset | 2017 $64,400 7 $4,80,475 = 13.40% 2016 $57,275 / $4,11,550 = 13.92% 2017 2016 (*) Particulars Average Total Assets Opening Total Assets (A) Add: Closing Total Assets (B) Total (A) + (B) Average Total Assets $4,44,200 $5,16,750 $9,60,950 $4,80,475 ($960950/2] $3,78,900 $4,44,200 $8,23,100 $4,11,550 ($823100/2]