Analysis of Profitability Based on the financial statements of Cowan Kitchen Cou

Question

Analysis of Profitability Based on the financial statements of Cowan Kitchen Counters, Inc., as shown below: Cowan Kitchen Counters, Inc. Comparative Income Statement For Years Ended December 31, 20-2 and 20-1 20-2 20-1 Net Sales (all on account) Cost of goods sold Gross profit Operating expenses Other expense (interest) Income tax expense Net income $2,573,400 1,855,800 $717,600 313,300 24,200 173,200 $206,900 $2,160,700 1,618,200 $542,500 219,000 24,200 104,500 $194,800 Cowan Kitchen Counters, Inc. Comparative Balance Sheet December 31, 20-2 and 20-1 20-2 20-1 $258,100 $246,000 Cash Government notes Accounts receivable (net) 246,700 246,700 901,300 797,800

Explanation / Answer

A)

Profit margin ratio = (Net income / net sales (all on account))* 100

Profit margin ratio =($206,900 / $2,573,400)*100

Profit margin ratio = 8.04%

B)

Return on assets = (Net income / Total assets)*100

Return on assets = ($206,900 / $2,996,200)*100

Return on assets = 6.91%

C)

Return on common stockholders' equity = ((Net income - Preferred dividend) / Average common stockholders' equity)*100

Return on common stockholders'equity = (($206,900 - $0)/($1,800,000+$1,800,000/2))*100

Return on common stockholders'equity = ($206,900 / $1,800,000)*100

Return on common stockholders' equity = 11.49%

D)

Earnings per share of common stock = ((Net income - Preferred dividend) / Average number of shares outstanding)

Earnings per share of common stock = (($206,900 - $0) / (180,000 + 180,000)/2)

Earnings per share of common stock = $206,900 / 180,000

Earnings per share of common stock = $1.15 per share

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