Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr					1 Yr Ago			2 Yrs Ago
Assets
Cash		$	32,200			$	36,500		$	37,800
Accounts receivable, net			87,300				64,000			49,000
Merchandise inventory			111,000				81,200			54,000
Prepaid expenses			10,700				9,250			4,400
Plant assets, net			279,000				258,500			231,000
Total assets		$	520,200			$	449,450		$	376,200
Liabilities and Equity
Accounts payable		$	128,400			$	73,750		$	50,600
Long-term notes payable secured by mortgages on plant assets			97,500				101,500			82,400
Common stock, $10 par value			162,000				162,000			162,000
Retained earnings			132,300				112,200			81,200
Total liabilities and equity		$	520,200			$	449,450		$	376,200

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				$	725,000					$	600,000
Cost of goods sold	$	449,500					$	378,000
Other operating expenses		232,000						150,000
Interest expense		11,100						13,000
Income tax expense		9,350						9,000
Total costs and expenses					701,950						550,000
Net income				$	23,050					$	50,000
Earnings per share				$	1.42					$	3.09

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

(3-a) Return on total assets.
(3-b) Based on return on total assets, did Simon's operating efficiency improve or worsen in the Current Year versus 1 Year Ago?

Complete this question by entering your answers in the tabs below.

• Required 3A
• Required 3B

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: / = %

Answer 1

3a.

Return On Total Assets
	Choose Numerator:	/	Choose Denominator:	=	Return On Total Assets
	Net Income	/	Average Total assets	=	Return on total assets
Current Year:	23,050	/	(520,200+449450)/2	=		4.75%
1 Year Ago:	50000	/	(449450+376,200)/2	=		12.11%

3b.  Based on return on total assets, Simon's operating efficiency worsen in the Current Year versus 1 Year Ago.