The following income statement and balance sheets for Virtual Gaming Systems are

Question

The following income statement and balance sheets for Virtual Gaming Systems are provided.

VIRTUAL GAMING SYSTEMS
Income Statement
For the year ended December 31, 2018

Earnings per share for the year ended December 31, 2018, are $1.20. The closing stock price on December 31, 2018, is $26.30.

Required:

Calculate the following profitability ratios for 2018. (Round your answers to 1 decimal place.)

Profitability Ratios1.Gross profit ratio %

2.Return on assets %

3.Profit margin %

4.Asset turnover times

5.Return on equity %

6.Price-earnings ratio

The following income statement and balance sheets for Virtual Gaming Systems are provided.

VIRTUAL GAMING SYSTEMS
Income Statement
For the year ended December 31, 2018

  Net sales $2,986,000   Cost of goods sold 1,940,000            Gross profit 1,046,000   Expenses:       Operating expenses $848,000       Depreciation expense 27,000       Loss on sale of land 7,000       Interest expense 10,000       Income tax expense 38,000             Total expenses 930,000      Net income $ 116,000

Explanation / Answer

1.Gross Profit Ratio

= [ Gross profit / Sales ] * 100

= [ 1,046,000  / 2,986,000  ] * 100

= 35 %

2. Return on assets

Net Income = 116000

Average Total Asset= (849000+711800)/2=780400

= [ Net Income / Average Total Assets ] *10

= (116000/780400) * 100

= 14.9 %

3.Profit margin

=[ Net Income / Net Sales ]* 100

= [116000 / 2986000 ]* 100

= 3.9 %

4.Asset turnover Ratio

=  Sales  / average Total Asset

= 2986000 / 780400

= 3.83 Times

5.Return on equity

=[ Net Income / Shareholders Equity ] *100

= [ (116000) / (290000+214000) ] *100

= 23 %

6.Price-earnings ratio

= Market Price / EPS

= $ 26.30 / $ 1.20

= 21.9 Times or 22 Times

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