According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2016. Lets see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016.

Required:

1. Compute the gross profit percentage for each year. Assuming that the change from 2015 to 2016 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2017?
2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Computer Tycoon did a better or worse job of controlling operating expenses in 2016 relative to 2015.
3. Computer Tycoon reported average net fixed assets of $54,500 in 2016 and $45,400 in 2015. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2016 or 2015?
4. Computer Tycoon reported average stockholders equity of $54,300 in 2016 and $41,100 in 2015. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2016 than in 2015?

2016 2015 $103,000 61,500 Sales Revenue $124,500 72,700 51,800 37,600 Cost of Goods Sold 41,500 36,300 Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense 530 490 4,670 1,000 13,710 5,300 Income Tax Expense $ $ 3,670 8,410 Net Income Gross Profit 1-a Percentage 2015 2016 1-b. Likely to earn in 2017? |OM More Gross Profit Less Gross Profit 2-a Net Profit Margin 2015 2016 % 2-b. Controlling operating expenses in 2016 vs 2015? O O Better Job Worse Job Fixed Asset 3-a Turnover 2015 2016 3-b. Investment better utilized? O2015 O2016 Return on Equity (ROE) 4-a 2015 2016 4-b. Greater returns generated in 2016? OYes ONo