Question

The following income statement and balance sheets for Virtual Gaming Systems are provided.

VIRTUAL GAMING SYSTEMS
Income Statement
For the year ended December 31, 2021
Net sales					$	3,046,000
Cost of goods sold						1,952,000
Gross profit						1,094,000
Expenses:
Operating expenses	$	860,000
Depreciation expense		27,000
Loss on sale of land		8,200
Interest expense		16,000
Income tax expense		50,000
Total expenses						961,200
Net income					$	132,800

VIRTUAL GAMING SYSTEMS
Balance Sheets
December 31
	2021				2020
Assets
Current assets:
Cash	$	188,000			$	146,000
Accounts receivable		83,000				62,000
Inventory		107,000				137,000
Prepaid rent		12,200				6,240
Long-term assets:
Investment in bonds		107,000				0
Land		212,000				242,000
Equipment		272,000				212,000
Less: Accumulated depreciation		(71,000	)			(44,000	)
Total assets	$	910,200			$	761,240
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	68,000				$ 115,840
Interest payable		6,400				3,200
Income tax payable		16,000				14,200
Long-term liabilities:
Notes payable		287,000				227,000
Stockholders' equity:
Common stock		302,000				302,000
Retained earnings		230,800				99,000
Total liabilities and stockholders’ equity	$	910,200			$	761,240

Earnings per share for the year ended December 31, 2021, are $1.20. The closing stock price on December 31, 2021, is $27.50.

Required:

Calculate the following profitability ratios for 2021. (Round your answers to 1 decimal place.)

Answer 1

Gross Profit ratio
Gross profit(a)	1094000
Net sales(b)	3046000
Ratio(a/b)	35.9%
Retrun on assets
Net income(a)	132800
Average assets(b)	835720	(910200+761240)/2
Ratio(a/b)	15.9%
Profit margin
Net income(a)	132800
Net sales(b)	3046000
Ratio(a/b)	4.4%
Asset turnover
Net sales(a)	3046000
Average assets(b)	835720
Ratio(a/b)	3.6	times
Return on equity
Net income(a)	132800
Average stockholders equity(b)	466900
(302000+302000+230800+99000)/2
Ratio(a/b)	28.4%
P/E ratio
MPS(a)	27.5
EPS(b)	1.2
P/E ratio	22.9	times