Question

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

TIMES MIRROR AND GLASS COMPANY

Sales $270,000
Cost of goods sold 130,000
Gross profit $140,000
Selling and administrative expense 43,200
Lease expense 11,700
Operating profit* $85,100
Interest expense 9,300
Earnings before taxes $75,800
Taxes (30%) 30,320
Earnings after taxes $45,480

*Equals income before interest and taxes.

Required:
a. Compute the profit margin ratio.
b. Compute the total asset turnover ratio.
c. Compute the return on assets (investment).

Answer 1

a. 9.15 times

b. 4.61 times

c. 31.52%

d. 1.08 times

e. 20.88 %

Step-by-step explanation:

Note : I have attached the full question as image below.

Interest Coverage = Earnings Before Interest and tax ÷ Interest expense

= $85,100 ÷ $9,300

= 9.15 times

Fixed Charge Coverage = EBIT + Lease Payments ÷ Interest Payments + Lease Payments

= $85,100 + $11,700 ÷ $9,300 + $11,700

= 4.61 times

Profit margin = Operating Profit / Sales x 100

= $85,100 / $270,000 x 100

= 31.52%

Total asset turnover = Sales ÷ Total Assets

= $270,000 ÷ $249,000

= 1.08 times

Return on assets (investment) = Earning Before Interest after Tax / Total Assets x 100

= ($45,480 + $9,300 x 70%) / $249,000 x 100

= 20.88 %