Compute the net profit margin

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Reference no: EM131594490

Q1. Company X recorded the following profit figures in 2015-2017.

 

2015

2016

2017

Net sales

52,000

54,600

56,500

Cost of products sold

15,600

16,500

17,200

Gross Profit

36,400

38,100

39,300

Selling expenses

8,500

9,000

9,100

General expenses

6,000

6,200

6,400

Research and development

4,200

4,200

4,400

Operating income

17,700

18,700

19,400

Other income (expense)

550

600

700

Earnings before tax

18,250

19,300

20,100

Income tax

5,475

5,790

6,030

Net income

12,775

13,510

14,070

Required -

a) Compute the net profit margin for 2015-2017.

b) Compute the gross profit margin for 2015-2017.

c) Describe the trend in profitability and pinpoint its causes

Q2. The following is the data from Company X for 2016 and 2017.

 

2016

2017

Net Sales

$800,000

$900,000

Receivables (less allowance for doubtful accounts)

 

Beginning of period

$45,000

$60,000

End of period

$60,000

$80,000

Required -

a) Compute the days' sales in receivables for December 31, 2016, and December 31, 2017, based on the data above.

b) Compute the accounts receivable turnover for the period ended December 31, 2016, and December 31, 2017.

c) Comment on the results from (a) and (b).

Q3.The following is the selected Balance Sheet and Income Statement for Company X. The company used LIFO inventory method.

 

2017

2016

Selected Balance Sheet Data:

 

 

Merchandise inventories

$ 24,000 

$ 22,000 

Total current assets

41,000 

39,000 

Total assets

85,000 

75,000 

Total current liabilities

25,000 

24,000 

Total long-term debt

30,000 

30,000 

 

 

 

Selected Income Statement Data:

 

 

Net sales

$360,000 

$320,000 

Cost of merchandise sold

295,000 

260,000 

Net income

4,200 

4,500 

Net income per common share

$2.60 

$2.80 

Effective tax rate

40%

40%

Selected partial note with 2017 financial statements: Inventories have been reduced by $10,000 and $7,000 at December 31, 2017, and December 31, 2016, respectively, from amounts which would have been reported under the FIFO method (which approximated current cost). Had the company valued all of its inventories under the FIFO method, net income would have been approximately $5,600 in 2017 and $5,601 in 2016.

Required - Compute the following ratios for 2017 from the financial statements:

1. Days' Sales in Inventory

2. Working Capital.

3. Current Ratio

4. Debt Ratio

a) Compute the following ratios for 2017, using LIFO disclosure:

b) Compute the following ratios for 2017, using FIFO disclosure:

c) Comment on the difference in the indicated liquidity and debt between the ratios computed under LIFO and the ratios computed under FIFO.

Reference no: EM131594490

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