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Exercise 17-10 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	$	31,800		$	35,500		$	38,200
Accounts receivable, net		89,900			63,500			50,500
Merchandise inventory		112,000			81,400			52,500
Prepaid expenses		10,800			9,250			4,000
Plant assets, net		278,000			252,500			226,000
Total assets	$	522,500		$	442,150		$	371,200
Liabilities and Equity
Accounts payable	$	129,600		$	74,750		$	51,000
Long-term notes payable secured by mortgages on plant assets		97,000			100,000			81,200
Common stock, $10 par value		164,000			164,000			164,000
Retained earnings		131,900			103,400			75,000
Total liabilities and equity	$	522,500		$	442,150		$	371,200

The company’s income statements for the years ended December 31, 2017 and 2016, follow.

For Year Ended December 31	2017						2016
Sales				$	705,000					$	530,000
Cost of goods sold	$	415,950					$	328,600
Other operating expenses		197,400						132,500
Interest expense		12,100						12,800
Income taxes		9,400						8,750
Total costs and expenses					634,850						482,650
Net income				$	70,150					$	47,350
Earnings per share				$	4.28					$	2.89

Evaluate the company's efficiency and profitability by computing the following for 2017 and 2016.

(1) Profit margin ratio.

(2) Total asset turnover.

(3) Return on total assets.

	Profit Margin Ratio Choose Numerator: / Choose Denominator: = Profit Margin Ratio / = Profit margin ratio 2017 / = % 2016 / = %

	Total Asset Turnover Choose Numerator: / Choose Denominator: = Total Asset Turnover / = Total asset turnover 2017 / = times 2016 / = times

	Return On Total Assets Choose Numerator: / Choose Denominator: = Return On Total Assets / = Return on total assets 2017 / = % 2016 / = %

Answer 1

Profit margin ratio

	Choose numerator	/	Choose denominator	=	Profit margin ratio
	Net income	/	Sales	=	Profit margin ratio
2017	70150	/	705000	=	9.95%
2016	47350	/	530000	=	8.93%

Asset turnover

	Choose numerator	/	Choose denominator	=	Assets turnover
	Sales	/	Average assets	=	Assets turnover
2017	705000	/	482325	=	1.46 Times
2016	530000	/	406675	=	1.30 Time

Return on assets

	Choose numerator	/	Choose denominator	=	Return on assets
	Net income	/	Average assets	=	Return on assets
2017	70150	/	482325	=	14.54%
2016	47350	/	406675	=	11.64%