Question

PART B:At the beginning of 2019, the BuckeyeCorporation added a new product line to its production and sales. Buckeye’s Balance Sheet and Income Statement are provided in the “Homework4 Student Workbook”in the worksheet titled “Part B Financials.”Required:Calculate the following ratios for both 2019and 2018. Do not retype the amounts used in the ratios (instead refer to the appropriate cells from the provided balance sheet and income statement). Round your answers to 3 decimal places. In 2-3 sentences each, discuss your interpretation of the change in each ratio across the two years, consideringthe addition of a new product line. Put your answers in the worksheet titled “Part B Answer.” Use a separate textbox for your discussion of the change in each ratio.

a.Total Asset Turnover(Net Sales/Average Total Assets)

b.Gross Profit Margin (Gross Profit/Net Sales)

c.Net Profit Margin(Net Income/Net Sales)

d.Return on Assets (ROA)(Net Income/Average Total Assets)

Total assets were $750,000 on December 31, 2017

		2019	2018
	Assets
	Current Assets:
	Cash	$500,000	$400,000
	Accounts Receivable	28,355	72,355
	Inventory	436,200	284,513
	Supplies	85,321	60,240
	Prepaid Rent	20,322	15,638
	Total Current Assets	1,070,198	832,746
	Property, Plant and Equipment:
	Equipment	400,500	332,680
	Less: Accumulated Depreciation	45,210	35,291
	Property, Plant and Equipment, net	355,290	297,389
	Total Assets	$1,425,488	$1,130,135
	Liabilities and Stockholders' Equity
	Current Liabilities:
	Accounts Payable	50,546	43,521
	Unearned Revenue	48,956	35,899
	Income Taxes Payable	3,521	4,561
	Total Current Liabilities	103,023	83,981
	Long-term Debt	369,875	352,681
	Total Liabilities	472,898	436,662
	Stockholders' Equity
	Contributed Capital	406,570	320,000
	Retained Earnings	546,020	373,473
	Total Stockholders' Equity	952,590	693,473
	Total Liabilities and Stockholders' Equity	$1,425,488	$1,130,135
		2019	2018
	Net Sales	$1,000,825	$886,972
	Cost of Sales	528,690	452,388
	Gross Profit	472,135	434,584
	Salaries and Wages Expense	90,320	89,520
	Rent Expense	40,500	32,040
	Depreciation Expense	38,652	29,569
	Other Operating Expenses	35,217	28,980
	Operating Costs and Expenses	204,689	180,109
	Operating Income	267,446	254,475
	Interest Income	852	523
	Interest Expense	531	623
	Income before Taxes	267,767	254,375
	Income Tax Expense	22,314	12,513
	Net Income	$245,453	$241,862

Answer 1

a.Total Asset Turnover(Net Sales/Average Total Assets)

2019 = 1000825 / ( 1425488 + 1130135 ) / 2 = 1000825 / 1277812 = 0.78

2018 = 886972 / ( 1130135 + 750000 ) / 2 = 886972 / 940068 = 0.94

The ratio for both years is less than 1 which shows company assets are not used efficiently to generate sales

b.Gross Profit Margin (Gross Profit/Net Sales)

2019 = 472135 / 1000825 = 47.17%

2018 = 434584 / 886972 = 48.99%

Gross Profit for both years are good though industry average is not provided for the comparison.

c.Net Profit Margin(Net Income/Net Sales)

2019 = 245453 / 1000825 = 24.53%

2018 = 241862 / 886972 = 27.27%

Net Profit Margin for both years are good though industry average is not provided for the comparison.

d.Return on Assets (ROA)(Net Income/Average Total Assets)

2019 = 245453 / 1277812 = 19.21%

2018 = 241862 / 940068 = 25.73%

Return on Assets have dropped from 2018 to 2019 due to increase in expenses.