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 $102,000 61,000 41,000 36,200 520 4,280 1,000 $ 3,280 2015 $123,000 72,300 50,700 37,400 485 12,815 5,200 $ 7,615 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 $54,400 in 2016 and $45,300 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 $54,200 in 2016 and $41,000 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 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 eari more or less gross profit from each dollar of sales in 2017? 1-a. Gross Profit Percentage % 2015 2016 % 1-b. Likely to earn in 2017? More Gross Profit OLess Gross Profit Required 1 Required 2 Required 3 Required 4 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? Better Job O Worse Job Required 1 Required 2 Required 3 Required 4 3-a. Computer Tycoon reported average net fixed assets of $54,400 in 2016 and $45,300 in 2015. Compute the fixed ass 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? O 2015 O 2016 Required 1 Required 2 Required 3 Required 4 4-a. Computer Tycoon reported average stockholders' equity of $54,200 in 2016 and $41,000 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? 4-a. Return on Equity (ROE) % 2015 2016 % 4-b. Greater returns generated in 2016? OYes No
