Chapter 2: 24BP_d (page 83)

Using the income statement for Times Mirror and Glass Co., compute the following ratios:
The total assets for this company equal $80,000. Set up the equation for the Du Pont system of ratio analysis, and compute c, d, and e.
d. Total assets turnover ratio.
Times mirror and glass company
Sales
$126,000
Less: Cost of goods sold
93,000
Gross profit
$33,000
Less: selling and administrative expenses
11,000
Lease Expenses
4,000
Operating profit*
$18,000
Less: Interest expenses
3,000
Earning before taxes
$15,000
Less: Taxes (30%)
4,500
Earning after taxes
$10,500
*equal income before interest and taxes

Expert verified

Total assets turnover of the company is 1.575.

Step by step solution

As per the Du Pont analysis, the return on assets is computed by multiplying the assets turnover ratio by the profit margin.

Here, Profit margin is 8.33% and the Return on asset is 13.125%

$\begin{array}{rcl} Total asset turnover ratio & = & \frac{Return on assets}{Profit margin} \\ = & \frac{13.125 %}{8.33 %} \\ = & 1.575 \end{array}$

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Selling and administrative expenses	$328,000
Depreciation expenses	195,000
Sales	1,660,000
Interest expenses	129,000
Cost of goods sold	560,000
Taxes	171,000

Sales	\( 2790000
Cost of goods sold	1790000
Gross profits	\) 1000000
Selling and administrative expenses	302000
Operating profits	\( 698000
Interest Expense	54800
Income before tax	\) 643200
Taxes 30%	192960
Income after tax	$ 450240

	20X1	20X2
Sales	\(3,230,000	\)3,370,000
Cost of goods sold	2,130,000	2,850,000
Gross profits	\(1,100,000	\)520,000
Selling and administrative expenses	298,000	227,000
Operating profits	\(802,000	\)293,000
Interest expense	47,200	51,600
Income before taxes	\(754,800	\)241,400
Taxes (35%)	264,180	84,490
Income after tax	\(490,620	\)156,910

Times mirror and glass company
Sales	\)126,000
Less: Cost of goods sold	93,000
Gross profit	\(33,000
Less: selling and administrative expenses	11,000
Lease Expenses	4,000
Operating profit*	\)18,000
Less: Interest expenses	3,000
Earning before taxes	\(15,000
Less: Taxes (30%)	4,500
Earning after taxes	\)10,500