Question

In: Accounting

Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs...

Simon Company’s year-end balance sheets follow.

At December 31 Current Yr 1 Yr Ago 2 Yrs Ago
Assets
Cash $ 31,800 $ 35,625 $ 37,800
Accounts receivable, net 89,500 62,500 50,200
Merchandise inventory 112,500 82,500 54,000
Prepaid expenses 10,700 9,375 5,000
Plant assets, net 278,500 255,000 230,500
Total assets $ 523,000 $ 445,000 $ 377,500
Liabilities and Equity
Accounts payable $ 129,900 $ 75,250 $ 51,250
Long-term notes payable secured by
mortgages on plant assets
98,500 101,500 83,500
Common stock, $10 par value 163,500 163,500 163,500
Retained earnings 131,100 104,750 79,250
Total liabilities and equity $ 523,000 $ 445,000 $ 377,500

  
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 $ 673,500 $ 532,000
Cost of goods sold $ 411,225 $ 345,500
Other operating expenses 209,550 134,980
Interest expense 12,100 13,300
Income tax expense 9,525 8,845
Total costs and expenses 642,400 502,625
Net income $ 31,100 $ 29,375
Earnings per share $ 1.90 $ 1.80


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

(1-a) Profit margin ratio.
(1-b) Did profit margin improve or worsen in the Current Year versus 1 Year Ago?

2.Total asset turnover.

3.3-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?

Solutions

Expert Solution

1a)
Current Year
Profit Margin = Net Income / Sales
= $31100/673500
=4.62 %
1 year Ago
= $29375/532000
=5.52 %
1b) Profit margin ratio worsen
2a) Current Year
Average Assets = (beginning Assets + ending Assets)/2
= ( $445000+523000)/2
= $ 484000
Return On Assets = Net Income / Average Assets
= $31100/484000
=6.43 %
1 Year Ago
Average Assets = (beginning Assets + ending Assets)/2
= ( $377500+445000)/2
= $ 411250
Return On Assets = Net Income / Average Assets
= $29375/411250
=7.14 %
2b) Return on asset ratio worsen

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