xercise 12-6B Evaluate profitability ratios (LO12-4)

The Year 2 income statement of Company A reports sales of $22,310,000, cost of goods sold of $13,000,000, and net income of $2,300,000. Balance sheet information is provided in the following table.

COMPANY A Balance Sheets December 31, Year 2 and Year 1
	Year 2				Year 1
Assets
Current assets:
Cash	$	1,000,000			$	1,010,000
Accounts receivable		1,975,000				1,325,000
Inventory		2,525,000				1,875,000
Long-term assets		5,200,000				4,490,000
Total assets	$	10,700,000			$	8,700,000
Liabilities and Stockholders' Equity
Current liabilities	$	2,250,000			$	1,940,000
Long-term liabilities		2,670,000				2,680,000
Common stock		2,275,000				2,125,000
Retained earnings		3,505,000				1,955,000
Total liabilities and stockholders' equity	$	10,700,000			$	8,700,000

Industry averages for the following profitability ratios are as follows:

Gross profit ratio	45	%
Return on assets	25	%
Profit margin	15	%
Asset turnover	16.5	times
Return on equity	35	%

Required: 1. Calculate the five profitability ratios listed above for Company A. (Round your answers to 1 decimal place.)

2. Do you think the company is more profitable or less profitable than the industry average?

• More profitable

• Less profitable