4.00 points E13-4 Computing Profitability Ratios [LO 13-4, 13-5 According to the

Question

4.00 points E13-4 Computing Profitability Ratios [LO 13-4, 13-5 According to the producer price index database maintained by the Bureau of Labor Statistics, the average coet of computer equipment fell 4.8 percent between 2012 and 2013. Let's see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2013 2013 $10G,000 $129,000 2012 Sales Revenue Cost of Goods Sold 43,000 36,600 Selling, General, and Administrative Expenses Interest Expense Incomo boforo Incomo Tax Exponso Income Tax Expenso Net Income 38.200 5,840 6,395 $ 4,340 10,795

Explanation / Answer

3-a) Calculation of fixed asset turnovr ratio: 2012    Fixed asset turnover ratio= Sales/ average net fixed assets                                                    =129000/45700= 2.82 Fixed asset turnover ratio=2.82 2013    Fixed asset turnover ratio= Sales/ average net fixed assets                                                    =106000/54800= 1.93 Fixed asset turnover ratio=1.93 3-b) Since the Fixed asset turnover ratio is high in 2012 as compared to 2013 so company better utilize its assets to generate revenue in 2012. So correct answer is 2012 4-a) Calculation of retun on equity: 2012    Return on equity= Net income/ shareholder's equity*100                                                    =10795/41400*100=26.1% Return on equity is 26.1% 2013    Return on equity= Net income/ shareholder's equity*100                                                    =4340/54600*100=7.9% Return on equity is 7.9% 4-b) No company does not generate greater return for shareholders in 2013 than in 2012 because return on equity is lower in 2013. So correct answer is no.

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