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. Let's see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2016. Sales Revenue Cost of Goods Sold Gross Profit Selling, General, and Administrative Expenses Interest Expense Income before Income Tax Expense Income Tax Expense Net Income 2016 $112,000 66,000 46,000 37,200 620 8,180 2,000 $ 6,180 2015 $ 138,000 76,300 61,700 39,400 535 21,765 6,200 $ 15,565 Required: 2015 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 $55,400 in 2016 and $46,300 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 $55,200 in 2016 and $42,000 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? 1-a. Compute the gross profit percentage for each year. (Round your answers to 1 decimal place.) 1-b. 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? 1-a. Gross Profit Percentage 2015 2016 1-5. Likely to earn in 2017? More Gross Profit Less Gross Profit 2-a. Compute the net profit margin for each year. (Round your answers to 1 decimal place.) 2-b. Did Computer Tycoon do a better or worse job of controlling operating expenses in 2016 relative to 2015? 2-a. Net Profit Margin 2015 2016 2-b. Controlling operating expenses in 2016 vs 2015? O Better Job Worse Job 3-a. Computer Tycoon reported average net fixed assets of $55,400 in 2016 and $46,300 in 2015. Compute the fixed asset turnover ratios for both years. (Round your answers to 2 decimal place.) 3-b. Did the company better utilize its investment in fixed assets to generate revenues in 2016 or 2015? 3-a. Fixed Asset Turnover 2015 2016 3-b. Investment better utilized? 2015 O 2016 4-a. Computer Tycoon reported average stockholders' equity of $55,200 in 2016 and $42,000 in 2015. The company has not issued preferred stock. Compute the return on equity ratios for both years. (Round your answers to 1 decimal place.) 4-b. Did the company generate greater returns for stockholders in 2016 than in 2015? 14-a Return on Equity (ROE) 2015 2016 4-b. Greater returns generated in 2016? Yes No
