Chapter 13, Problem 13.4E

Computing Profitability Ratios

Use the information in E13-3 to complete the following requirements.

Required:

1. 1. Compute the gross profit percentage for each year (rounded to one decimal place). Assuming that the change from 2012 to 2013 is the beginning of a sustained trend, is Computer Tycoon likely to earn more or less gross profit from each dollar of sales in 2014?
2. 2. Compute the net profit margin for each year (expressed as a percentage with one decimal place). Given your calculations here and in requirement 1, explain whether Computer Tycoon did a better or worse job of controlling operating expenses in 2013 relative to 2012.
3. 3. Computer Tycoon reported average net fixed assets of $54,200 in 2013 and $45,100 in 2012. Compute the fixed asset turnover ratios for both years (round to two decimal places). Did the company better utilize its investment in fixed assets to generate revenues in 2013 or 2012?
4. 4. Computer Tycoon reported average stockholders’ equity of $54,000 in 2013 and $40,800 in 2012. Compute the return on equity ratios for both years (expressed as a percentage with one decimal place). Did the company generate greater returns for stockholders in 2013 than in 2012?