Exercise 17-11 Efficiency and profitability analysis LO P3 Simon Company’s year-end balance sheets follow

Exercise 17-11 Efficiency and profitability analysis LO P3

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Simon Company’s year-end balance sheets follow.

      

	At December 31			2014			2013			2012
	Assets
	Cash		$	31,600		$	36,500		$	37,200
	Accounts receivable, net			87,600			64,000			51,000
	Merchandise inventory			112,500			81,600			53,000
	Prepaid expenses			10,350			9,475			4,100
	Plant assets, net			279,000			258,500			229,000
	Total assets		$	521,050		$	450,075		$	374,300
	Liabilities and Equity
	Accounts payable		$	129,600		$	74,250		$	50,400
	Long-term notes payable secured by   mortgages on plant assets			97,000			99,250			80,200
	Common stock, $10 par value			163,000			163,000			163,000
	Retained earnings			131,450			113,575			80,700
	Total liabilities and equity		$	521,050		$	450,075		$	374,300

   

The company’s income statements for the years ended December 31, 2014 and 2013, follow.

    

For Year Ended December 31	2014						2013
Sales				$	685,000					$	620,000
Cost of goods sold	$	404,150					$	403,000
Other operating expenses		198,650						142,600
Interest expense		11,200						12,900
Income taxes		9,600						8,900
Total costs and expenses					623,600						567,400
Net income				$	61,400					$	52,600
Earnings per share				$	3.77					$	3.23

     

Evaluate the company's efficiency and profitability by computing the following for 2014 and 2013. Explanation: Profit margin 2014: $61,400 / $685,000 = 9.0% 2013: $52,600 / $620,000 = 8.5% Explanation: Total asset turnover     $685,000      2014: =  1.4 times   ($521,050 + $450,075)/2               $620,000      2013: =  1.5 times   ($450,075 + $374,300)/2     Explanation: Return on total assets     $61,400      2014: =  12.6%   ($521,050 + $450,075)/2               $52,600      2013: =  12.8%   ($450,075 + $374,300)/2