Exercise 12-70 (Algorithmic) Profitability Ratios Financial statements for Remin

Question

Exercise 12-70 (Algorithmic)
Profitability Ratios

Financial statements for Remington Inc. follow.

1. Compute the five profitability ratios for 2010 and 2011. Round intermediate calculations and final answers to two decimal places.

Remington Inc. Consolidated Statements of Income (In thousands except per share amounts) 2011 2010 2009 Net sales $ 7,245,088 $ 6,944,296 $ 6,149,218 Cost of goods sold (5,286,253) (4,953,556) (4,355,675) Gross income $ 1,958,835 $ 1,990,740 $ 1,793,543 General and administrative expenses (1,259,896) (1,202,042) (1,080,843) Special and nonrecurring items 2,617 - - Operating income $ 701,556 $ 788,698 $ 712,700 Interest expense (63,685) (62,398) (63,927) Other income 7,308 10,080 11,529 Gain on sale of investments - 9,117 - Income before income taxes $ 645,179 $ 745,497 $ 660,302 Provision for income taxes 254,000 290,000 257,000 Net income $ 391,179 $ 455,497 $ 403,302 Net income per share $1.08 $1.25 $1.11

Explanation / Answer

Gross profit percentage = Gross profit / Sales
2011 = $ 1,958,835 / $ 7,245,088 = 0.2704 or 27.04%
2010 = $ 1,990,740 / $ 6,944,296 = 0.2867 or 28.67%

Operating Margin percentage = Operating Income / Sales
2011 = $ 701,556 / $ 7,245,088 = 0.0968 or 9.68%
2010 = $ 788,698 / $ 6,944,296 = 0.1136 or 11.36%

Net profit margin percentage = Net Profit / Sales
2011 = $ 391,179 / $ 7,245,088 = 0.054 or 5.4%
2010 = $ 455,497 / $ 6,944,296 = 0.0656 or 6.56%

Return on assets = Net Profit / Average total assets
2011 = $ 391,179 / [ ($4,115,305 + $3,846,450) / 2 ] = 0.0982 or 9.82%
2010 = $ 455,497 / [ ($3,846,450 + $3,485,233) / 2 ] = 0.1242 or 12.42%

Return on equity = Net Profit / Average stockholder's equity
2011 = $ 391,179 / [ ($2,421,493 + $2,267,617) / 2 ] = 0.1668 or 16.68%
2010 = $ 455,497 / [ ($2,267,617 + $2,083,122) / 2 ] = 0.2093 or 20.93%

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