Question

At December 31 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assetss Liabilities and Equity Accounts payable Long-term notes payable secured by 2017 2016 2015 $ 31,200 35,250 37,200 50,500 54,000 4,200 281,000 254,000 233,000 $522,550 $443,550 $378,900 88,100 112,000 10,250 63,500 81,600 9,200 $129,600 73,500 50,800 mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity 81,800 161,500 161,500 161,500 84,800 $522,550 $443,550 $378,900 97,500 101,000 133,950 107,550 The company's income statements for the years ended December 31, 2017 and 2016, follow For Year Ended December 31 Sales Cost of goods sold Other operating expenses Interest expense Income taxes Total costs and expenses Net income 2017 2016 $725,000 530,000 $456,750 217,500 11,300 9,350 $328,600 127,200 13,300 8,900 694,900 s 30,100 $1.86 478,000 $ 52,000 $ 3.22 Earnings per share

Evaluate the company's efficiency and profitability by computing the following for 2017 and 2016
(1) Profit margin ratio.
(2) Total asset turnover
(3) Return on total asset

Answer 1

RATIO 2017 2016

NET MARGIN RATIO 4.15% 9.81%

TOTAL ASSET TURNOVER 1.46 1.29

RETURN ON TOTAL ASSET 0.08 0.16

Step-by-step explanation:

(1) Net Margin Ratio:

Net Margin Ratio = Net Income / Net Sales x 100

2017:

Net Margin Ratio = $30,100 / $725,000 x 100 = 4.15%

2016:

Net Margin Ratio = $52,000 / $530,000 x 100 = 9.81%

(2) Total Assets Turnover:

Total Assets Turnover = Net Sales / Average Total Assets

*Average Total Assets = (Beginning Assets + Ending Assets) / 2

2017:

Average Total Assets = ($443,550 + $552,550) / 2 = $498,050

Total Assets Turnover = $725,000 / $498,050 = 1.46

2016:

Average Total Assets = ($378,900 + $443,550) / 2 = $411,225

Total Assets Turnover = $530,000 / $411,225 = 1.29

(3) Return on total asset:

Return on total asset = (Net Income + Interest Expense) / Average Total Assets

2017:

Return on total asset = ($30,100 + $11,300) / $498,050 = 0.08

2016:

Return on total asset = ($52,000 + $13,300) / $411,225 = 0.16