Question

Computing and Interpreting Financial Statement Ratios.

Following are selected ratios of Colgate-Palmolive for 2015 and 2014.
Return on Assets(ROA) Component 2015 2014
Profitability (Net income/Sales) 8.50% 12.50%
Productivity (Sales/Average assets) 1.42 1.29
a. Was the company profitable in 2015. What evidence do you have of this?
O No, Colgate-Palmolive was not profitable as evidenced by its decrease in its net profit margin.
O Yes, Colgate-Palmolive was profitable as evidenced by its positive net profit margin.
b. Is the change in productivity (asset turnover) a positive development?
O No, the increase indicates more operating assets were needed to generate the same level of sales as the prior year.
O Yes, the increase indicates that operating assets generated a higher level of sales than the prior year.

Answer 1

a. Yes, the company was profitable as it is evidence by the positive net profit margin.

b. Yes, increase in asset turnover increases shows that the operating assets generate higher amount of sales than the last year.

Step-by-step explanation:

a. Net Profit margin is the percentage (%) of the revenue remaining after all the expenses are subtracted from the sales. It states the amount of profit which a business could extract from the aggregate sales.

Yes, the company is profitable in the year 2015 as the business has positive net profit margin and it is also evidenced.

b. Assets turnover ratio is the one which measures the efficiency of the company or the business and its ability to generate the sales from the assets through comparing the net sales with the average aggregate assets.

Yes, the increase (last year it was 1.29, but now it increases from 1.29 to 1.42) states that the operating assets will generate higher amount of sales from the last year.