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Q20E

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Horngren'S Financial And Managerial Accounting
Found in: Page 842

Short Answer

Micatin, Inc.’s comparative income statement follows. The 2017 data are given as needed.

MICATIN INC.

Comparative Income Statement

Years Ended December 31, 2019, and 2018

Dollars in thousands

2019

2018

2017

Net Sales Revenue

$ 181,000

$ 160,000

Cost of Goods Sold

93,500

86,500

Selling and Administrative Expenses

45,000

40,500

Interest Expense

8,000

12,000

Income Tax Expense

11,000

10,500

Net Income

$ 23,500

$ 10,500

Additional data:

Total Assets

$ 209,000

$ 187,000

$ 167,000

Common Stockholders’ Equity

96,000

91,500

80,500

Preferred Dividends

2,000

2,000

0

Common Shares Outstanding During the Year

15,000

15,000

10,000

Requirements

  1. Calculate the profit margin ratio for 2019 and 2018.
  2. Calculate the rate of return on total assets for 2019 and 2018.
  3. Calculate the asset turnover ratio for 2019 and 2018.
  4. Calculate the rate of return on common stockholders’ equity for 2019 and 2018.
  5. Calculate the earnings per share for 2019 and 2018.
  6. Calculate the 2019 dividend payout on common stock. Assume dividends per share for common stock are equal to $1.13 per share.
  7. Did the company’s operating performance improve or deteriorate during 2019?

S. no.

Ratio

2019

2018

1

Profit margin ratio

13.0%

6.6%

2

Return on total assets

15.9%

12.7%

3

Asset turnover ratio

0.91 times

0.90 times

4

Return on common stockholders’ equity

22.9%

9.9%

5

Earnings per share

$1.43/share

$0.68/share

6The dividend payout on common stock for 2019 is 19.00%
7Yes, the company’s operating performance improve
See the step by step solution

Step by Step Solution

Step 1: Meaning of Profit margin ratio

The profit margin ratio shows the rate of income that remains after all business expenses have been paid. Formula to calculate the profit margin ratio is as follows:

Step 2: (1) Calculate the profit margin ratio for 2019 and 2018

2019

2018

Step 3: (2) Calculate the rate of return on total assets for 2019 and 2018.

2019

2018

Step 4: (3) Calculate the asset turnover ratio for 2019 and 2018.

2019

2018

Step 5: (4) Calculate the rate of return on common stockholders’ equity

2019

2018

Step 6: (5) Calculate the earnings per share for 2019 and 2018

2019

2018

Step 7: (6) Calculate the 2019 dividend pay-out on common stock

Step 8: (7) Analysing the company’s performance

The company’s performance improved during 2019 based on an improvement in all ratios evaluated.

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