E13-3 Preparing and Interpreting a Schedule for Horizontal and Vertical Analyses [LO 13-2, LO 13-3, LO 13-5) 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. Required: 1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Computer Tycoon Inc. for the year ended December 31, 2016. 2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. 2-b. Excluding income tax, interest, and operating expenses, did Computer Tycoon earn more profit per dollar of sales in 2016 compared to 2015? Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Conduct a vertical analysis by expressing each line as a percentage of total revenues. (Round percentage values to 1 decimal place.) COMPUTER TYCOON, INC. Income Statements For the Year Ended December 31 2016 2015 Sales Revenue $ 109,000 100.0 % $ 133,500 100.01% Cost of Goods Sold 64,500 % 75,100 % Gross Profit 44,500 58,400 % Selling, General, and Administrative Expenses 36,900 % 38,800 % Interest Expense 590 % 520 % Income before Income Tax Expense 7,010 % 19,080 % Income Tax Expense 1,500 % 5,900 Net Income $ 5,510 % $ 13,180 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 $111,000 65,500 45,500 37,100 610 7,790 2,000 $ 5,790 2015 $136,500 75,900 60,600 39,200 530 20, 870 6,100 $ 14,770 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 $55,300 in 2016 and $46,200 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 $55,100 in 2016 and $41,900 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 earn 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 Less Gross Profit E13-5 Computing a commonly used Solvency Ratio (LO 13-4, LO 13-5) 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 $119,000 69,500 49,500 37,900 690 10,910 2,500 $ 8,410 2015 $148,500 79,100 69,400 40,800 570 28,030 6,900 $ 21,130 Required: 1. Compute the times interest earned ratios for 2016 and 2015. (Round your answers to 1 decimal place.) Times Interest Earned 2015 2016 2. Does Computer Tycoon generate sufficient net income in both years before taxes and interest) to cover the cost of debt financing? Yes O No E13-7 Computing and Interpreting Selected Liquidity Ratios (LO 13-4, LO 13-5) Double West Suppliers (DWS) reported sales for the year of $330,000, all on credit. The average gross profit percentage was 40 percent on sales. Account balances follow: Accounts receivable (net) Inventory Beginning $ 48,000 63,000 Ending $ 58,000 43,000 Required: 1. Compute the following turnover ratios. 2. By dividing 365 by your ratios from requirement 1, calculate the average days to collect receivables and the average days to sell inventory. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the following turnover ratios. (Round your answers to 1 decimal place.) Receivables Turnover Ratio Inventory Turnover Ratio Required 1 Required 2 > PB13-5 Interpreting Profitability, Liquidity, Solvency, and P/E Ratios (LO 13-4, LO 13-5) Mattel and Hasbro are the two biggest makers of games and toys in the world. Mattel sells over $5.6 billion of products each year while annual sales of Hasbro products exceed $5 billion. Compare the two companies as a potential investment based on the following ratios reported by csimarket.com for twelve months ending in 2016: Mattel 48.00 Hasbro 62.0% 10.68 31.3 $4.38 14.6% $1.05 Ratio Gross profit percentage Net profit margin Return on equity EPS Receivables turnover ratio Inventory turnover ratio Current ratio Debt-to-assets P/E ratio 5.3 3.B 1.87 0.64 24.7 3.B 2.41 0.63 22.7 Required: 1. Which company appears more profitable? O Mattel O Hasbro Cannot determine b. Which company appears more liquid? O Mattel O Hasbro Cannot determine c. Which company appears more solvent? O Mattel O Hasbro O Cannot determine