Question
Simon Company’s year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs...
Simon Company’s year-end balance sheets follow.
| At December 31 | Current Yr | 1 Yr Ago | 2 Yrs Ago | ||||||||
| Assets | |||||||||||
| Cash | $ | 32,200 | $ | 36,500 | $ | 37,800 | |||||
| Accounts receivable, net | 87,300 | 64,000 | 49,000 | ||||||||
| Merchandise inventory | 111,000 | 81,200 | 54,000 | ||||||||
| Prepaid expenses | 10,700 | 9,250 | 4,400 | ||||||||
| Plant assets, net | 279,000 | 258,500 | 231,000 | ||||||||
| Total assets | $ | 520,200 | $ | 449,450 | $ | 376,200 | |||||
| Liabilities and Equity | |||||||||||
| Accounts payable | $ | 128,400 | $ | 73,750 | $ | 50,600 | |||||
| Long-term notes payable secured by mortgages on plant assets | 97,500 | 101,500 | 82,400 | ||||||||
| Common stock, $10 par value | 162,000 | 162,000 | 162,000 | ||||||||
| Retained earnings | 132,300 | 112,200 | 81,200 | ||||||||
| Total liabilities and equity | $ | 520,200 | $ | 449,450 | $ | 376,200 | |||||
The company’s income statements for the Current Year and 1 Year Ago, follow.
| For Year Ended December 31 | Current Yr | 1 Yr Ago | ||||||||||
| Sales | $ | 725,000 | $ | 600,000 | ||||||||
| Cost of goods sold | $ | 449,500 | $ | 378,000 | ||||||||
| Other operating expenses | 232,000 | 150,000 | ||||||||||
| Interest expense | 11,100 | 13,000 | ||||||||||
| Income tax expense | 9,350 | 9,000 | ||||||||||
| Total costs and expenses | 701,950 | 550,000 | ||||||||||
| Net income | $ | 23,050 | $ | 50,000 | ||||||||
| Earnings per share | $ | 1.42 | $ | 3.09 | ||||||||
For both the Current Year and 1 Year Ago, compute the following ratios:
(1-a) Profit margin ratio.
(1-b) Did profit margin improve or worsen in the Current Year versus 1 Year Ago?
Complete this question by entering your answers in the tabs below.
- Required 1A
- Required 1B
Profit margin ratio.
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Answers
1 a
Profit Margin Ratio Net Income / Net Sales = Profit margin Current Yr 23,050.00 / 725,000.00 = 3.18% 1 Yr Ago 50,000.00 / 600,000.00 = 8.33% 1 b. Profit margin is worsen in the Current Year by 5.15% (8.33% - 3.18%) compared to 1 Year Ago.
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