Profitability ratios (L03-2) 6. Sales Cost of goods sold Gross profit Selling and administrative expense Operating profit Interest expense $2,790,000 1,790,000 $1,000,000 302,000 $ 698,000 54,800 Income before taxes Taxes (30%) Income after taxes $ 643,200 192,960 450,240 a. Compute the profit margin for 20X1. b. Assume that in 20X2, sales increase by 10 percent and cost of goods sold increases by 20 percent. The firm is able to keep all other expenses the same. Assume a tax rate of 30 percent on income before taxes. What is income after taxes and the profit margin for 20X2? Turnover ratios (L03-2) 21. Jim Short's Company makes clothing for schools. Sales in 20X1 were $4,820,000. Assets were as follows: Cash Accounts receivable Inventory Net plant and equipment Total assets a. Compute the following: 1. Accounts receivable turnover. 2. Inventory turnover 3. Fixed asset turnover 4. Total asset turnover b. In 20X2, sales increased to $5,740,000 and the assets for that year were as follows: Cash Accounts receivable Inventory Net plant and equipment Total assets Once again, compute the four ratios. $ 163,000 889,000 411,000 520,000 $1,983,000 $ 163,000 924,000 1,063,000 520,000 $2,670,000 page 83 c. Indicate if there is an improvement or a decline in total asset turnover, and based on the other ratios, indicate why this Advanced Problems Return on assets analysis (L03-2) 26. In January 2007, the Status Quo Company was formed. Total assets were $544,000, of which $306,000 consisted of depreciable fixed assets. Status Quo uses straight-line depreciation of $30,600 per year, and in 2007 it estimated its fixed assets to have useful lives of 10 years. Aftertax income has been $29,000 per year each of the last 10 years. Other assets have not changed since 2007. a. Compute return on assets at year-end for 2007, 2009, 2012, 2014, and 2016. (Use $29,000 in the numerator for each year.) b. To what do you attribute the phenomenon shown in part a? C. Now assume income increased by 10 percent each year. What effect would this have on your preceding answers? (A comment is all that is necessary.) 0300 95