The following income statement and balance sheet for Virtual Gaming Systems are
ID: 2652667 • Letter: T
Question
The following income statement and balance sheet for Virtual Gaming Systems are provided. Earnings per share for the year ended December 31, 2012, are $1.00. The closing stock price on December 31, 2012, is $28.00.
VIRTUAL GAMING SYSTEMS
Income Statement
For the year ended December 31, 2012
Sales revenue $3,051,000
Cost of goods sold 1,969,000
Gross profit 1,082,000
Expenses:
Operating expenses 869,000
Depreciation expense 42,000
Loss on sale of land 9,000
Interest expense 16,900
Income tax expense 49,400
Total expenses 986,300
Net income $ 95,700
VIRTUAL GAMING SYSTEMS
Balance Sheet
December 31
2012 2011
Assets
Current assets:
Cash $ 190,000 $ 157,000
Accounts receivable 97,000 74,000
Inventory 106,000 146,000
Prepaid rent 12,000 8,000
Long-term assets:
Investment in bonds 129,000 0
Land 220,000 250,000
Equipment 239,000 181,000
Less: Accumulated depreciation (71,000) (29,000)
Total assets $ 922,000 $ 787,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 67,000 $ 81,000
Interest payable 6,000 23,000
Income tax payable 19,000 29,000
Long-term liabilities:
Notes payable 292,000 237,000
Stockholders' equity:
Common stock 303,000 281,000
Retained earnings 235,000 136,000
Total liabilities and stockholders’ equity $ 922,000 $ 787,000
Required:
Calculate the following profitability ratios for 2012. (Round your answers to 1 decimal place. Omit the "%" sign in your response.)
Profitability Ratios
1. Gross profit ratio %
2. Return on assets %
3. Profit margin %
4. Asset turnover times
5. Return on equity %
6. Price-earnings ratio times
Explanation / Answer
1) Gross Profit Ratio Gross Profit/Sales*100 Gross Profit Ratio 1,082,000/3,051,000 Gross Profit Ratio 35.46% 2) Return on Assets Net Income/ Total Assets Return on Assets 95,700/922,000 Return on Assets 10.38% Note : We can add interest expense back into net income when performing this calculation if you would like to use operating returns before cost of borrowing. 3) Profit Margin % Net Income/Sales Profit Margin % 95700/3051000 Profit Margin % 3.14% 4) Asset Turnover Sales/ Assets Asset Turnover 3051000/922000 Asset Turnover 3.31 5) Return on Equity Earnings for equity S/H / Equity Return on Equity 95700/538000 Return on Equity 17.79% Note: Equity (303000+235000) 6) PE Ratio MPS/EPS PE Ratio 28/1.00 PE Ratio 28.00
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