Exercise 14-8 Selected comparative statement data for Queen Products Company are

Question

Exercise 14-8 Selected comparative statement data for Queen Products Company are presented below. All balance sheet data are as of December 31 2015 2014 Net sales Cost of goods sold Interest expense Net income Accounts receivable Inventory Total assets Total common stockholders' equity $757,760 481,360 7,720 47,610 117,780 86,670 579,750 428,780 $718,200 444,490 4,640 43,630 107,800 76,230 502,960 328,650 Compute the following ratios for 2015. (Round answers to 1 decimal place, e.g. 1.6, or 1.6%.) (a) Profit margin (b) Asset turnover (c) Return on assets (d) Return on common stockholders' equity times

Explanation / Answer

Answer to Part a.

Profit Margin = Net Income / Sales * 100
Profit Margin = 47,610 / 757,760 * 100
Profit Margin = 6.3%

Answer to Part b.

Asset Turnover = Sales / Average Total Assets
Average Total Assets = (579,750 + 502,960) / 2
Average Total Assets = $541,355

Asset Turnover Ratio = 757,760 / 541,355
Asset Turnover Ratio = 1.4 times

Answer to Part c.

Return on Assets = Net Income / Average Total Assets
Return on Assets = 47,610 / 541,355
Return on Assets = 8.8%

Answer to Part d.

Return on Common Stockholders’ Equity = Net Income / Average Common Stockholders’ Equity
Average Common Stockholders’ Equity = (428,780 + 328,650) / 2
Average Common Stockholders’ Equity = $378,715

Return on Common Stockholders’ Equity = 47,610 / 378,715
Return on Common Stockholders’ Equity = 12.6%

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