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Using the income statement for Times Mirror and Glass Co., compute the following ratios:

TIMES MIRROR AND GLASS COMPANY

Sales $270,000
Cost of goods sold 130,000
Gross profit $140,000
Selling and administrative expense 43,200
Lease expense 11,700
Operating profit* $85,100
Interest expense 9,300
Earnings before taxes $75,800
Taxes (30%) 30,320
Earnings after taxes $45,480

*Equals income before interest and taxes.

Required:
a. Compute the profit margin ratio.
b. Compute the total asset turnover ratio.
c. Compute the return on assets (investment).

Sagot :

Zviko

Answer:

a.  9.15 times

b. 4.61 times

c. 31.52%

d. 1.08 times

e. 20.88 %

Explanation:

Note : I have attached the full question as image below.

Interest Coverage = Earnings Before Interest and tax ÷ Interest expense

                               = $85,100 ÷ $9,300

                               = 9.15 times

Fixed Charge Coverage = EBIT + Lease Payments ÷ Interest Payments + Lease Payments

                                        = $85,100 + $11,700 ÷ $9,300 + $11,700

                                        = 4.61 times

Profit margin = Operating Profit / Sales x 100

                       = $85,100 / $270,000 x 100

                      = 31.52%

Total asset turnover = Sales ÷ Total Assets

                                   = $270,000 ÷ $249,000

= 1.08 times

Return on assets (investment) = Earning Before Interest after Tax / Total Assets x 100

                                                  = ($45,480 + $9,300 x 70%) / $249,000 x 100

                                                  = 20.88 %

View image Zviko
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