Selected comparative statement data for Willingham Products Company are presente

Question

Selected comparative statement data for Willingham Products Company are presented below. All balance sheet data are as of December 31.
2011 2010
Net sales $760,000 $720,000
Cost of goods sold 480,000 440,000
Interest expense 7,000 5,000
Net income 50,000 42,000
Accounts receivable 120,000 100,000
Inventory 85,000 75,000
Total assets 580,000 500,000
Total common stockholders' equity 430,000 325,000

Instructions

Compute the following ratios for 2011. (a) Profit margin. (b) Asset turnover. (c) Return on assets. (d) Return on common stockholders' equity. (Round answers to 1 decimal place, e.g. 10.5.)

(a) Profit margin %
(b) Asset turnover times
(c) Return on assets %
(d) Return on common stockholders' equity %

Explanation / Answer

Calculating the ratios for the current year 2011: a) Profit margin ratio = Net income / Sales                                 = $50,000 / $760,000                                 = 0.066 or 6.6% b) Asset turnover ratio = Sales / Total Assets                                    = $760,000 / $580,000                                    = 1.31 times c) Return on Assets = Net income / Total assets                               = $50,000 / $580,000                               = 0.0862 or 8.62% d) Return on Equity = Net income / Total equtiy                               = $50,000 / $430,000                               = 0.1163 or 11.63% Calculating the ratios for the current year 2010: a) Profit margin ratio = Net income / Sales                                 = $42,000 / $720,000                                 = 0.058 or 5.8% b) Asset turnover ratio = Sales / Total Assets                                    = $720,000 / $500,000                                    = 1.44 times c) Return on Assets = Net income / Total assets                               = $42,000 / $500,000                               = 0.084 or 8.4% d) Return on Equity = Net income / Total equtiy                               = $42,000 / $325,000                               = 0.1292 or 12.92% Calculating the ratios for the current year 2010: a) Profit margin ratio = Net income / Sales                                 = $42,000 / $720,000                                 = 0.058 or 5.8% b) Asset turnover ratio = Sales / Total Assets                                    = $720,000 / $500,000                                    = 1.44 times c) Return on Assets = Net income / Total assets                               = $42,000 / $500,000                               = 0.084 or 8.4% d) Return on Equity = Net income / Total equtiy                               = $42,000 / $325,000                               = 0.1292 or 12.92%

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