Question

Simon Company's year-end balance sheets follow.

At December 31 2014 2013 2012
Assets
Cash $ 31,600 $ 35,500 $ 37,400
Accounts receivable, net 88,500 61,000 51,000
Merchandise inventory 112,000 83,600 52,500
Prepaid expenses 10,400 9,450 5,000
Plant assets, net 278,000 257,000 234,000
Total assets $ 520,500 $446,550 $ 379,900
Liabilities and Equity
Accounts payable $ 129,200 $ 73,000 $ 50,000
Long-term notes payable secured by
mortgages on plant assets 96,000 100,000 82,200
Common stock, $10 par value 162,000 162,000 162,000
Retained earnings 133,300 111,550 85,700
Total liabilities and equity $ 520,500 $446,550 $ 379,900
The company's income statements forthe y ears ended December 31, 2014 and 2013, follow.
For Year Ended December 31Sales
2014 2013
Sales $675,000 $630,000
Cost of goods sold $398,250 $390,600
Other operating expenses 202,500 144,900
Interest expense 12,300 13,000
Income taxes 9,550 8,925
Total costs and expenses 622,600 557,425
Net income $ 52.400 $ 72,575

Earnings per share $ 3.23 4.48
Evaluate the company's efficiency and profitability by computing the following for 2014 and 2013.
1. Profit margin ratio
2. Total Asset turn over.
3. Return on total asset

Answer 1

1. 2014 = 11 % and 2013 = 15 %

2. 2014 = 1.30 times and 2013 = 1.41 times

3. 2014 = 14.27 % and 2013 = 21.16 %

Step-by-step explanation:

1. Profit margin ratio

Profit margin ratio = Earnings Before Interest and Tax / Sales × 100

Therefore,

Profit margin ratio (2014) = ($ 52.400 + $ 9,550 + $12,300) / $675,000 × 100

= 11 %

Profit margin ratio (2013) = $ 72,575 + $ 8,925 + $13,000) / $630,000 × 100

= 15 %

2. Total Asset turnover.

Total Asset turnover = Sales ÷ Total Assets

Therefore,

Total Asset turnover (2014) = $675,000 ÷ $ 520,500

= 1.30 times

Total Asset turnover (2013) = $630,000 ÷ $446,550

= 1.41 times

3. Return on total asset

Return on total asset = Earnings Before Interest and Tax (EBIT) / Total Assets × 100

Therefore,

Return on total asset (2014) = $ 52.400 + $12,300 + $9,550 / $ 520,500 × 100

= 14.27 %

Return on total asset (2013) = $ 72,575 + $8,925 + $13,000 / $446,550 × 100

= 21.16 %