Your boss has asked you to calculate the profitability ratios of Cold Goose Metal Works, Inc. and make comments on its second-year performance as compared to its first-year performance. The following shows Cold Goose's income statement for the last two years. The company had assets of $7,050,000 in the first year and $11,277,600 in the second year. Common equity was equal to $3,750,000 in the first year, 100% of earnings were paid out as dividends in the first year, and the firm did not issue new stock in the second year. Net Sales $3,810,000 $3,000,000
Operating costs less depreciation and amortization 1365000 1,267,500
Depreciation and amortization $190,500 $120,000
Total Operating Costs 1,555,500 1,387,500
Operating Income (or EBIT) $225,450 $1,612,500
Less: Interest 225,450 169,313
Earnings before taxes (EBT) $2,029,050 $1,443,187
Less: Taxes (40%) 821,620 577,275
Net Income $1,217,430 $865,912

Required:
Calculate the profitability ratios of Cold Goose Metal Works, Inc.

Gross Margin %59.2%53.8%

 compares gross profit to sales revenue  

Ne income Margin32.0%28.9%

 compares net income to sales revenue  

ROA return on assets10.8%12.3%

net earnings relative to the company’s total assets.  

ROE return on equity32.5%23.1%

net income relative to stockholders’ equity,  

Explanation:

Net Sales                                                         3,810,0003,000,000

Operating costs less depreciation/amortization1,365,0001,267,500

Depreciation and amortization                            190,500120,000

Total Operating Costs                                        1,555,5001,387,500

Operating Income (or EBIT)                               2,254,5001,612,500

Less: Interest                                                           225,450169,313

Earnings before taxes (EBT)                               2,029,0501,443,187

Less: Taxes (40%)                                                   821,620577,275

Net Income                                                           1,217,430865,912

assets11,277,6007,050,000

Equity3,750,0003,750,000

Gross Margin %59.2%53.8%

 compares gross profit to sales revenue  

Ne income Margin32.0%28.9%

 compares net income to sales revenue  

ROA return on assets10.8%12.3%

net earnings relative to the company’s total assets.  

ROE return on equity32.5%23.1%

net income relative to stockholders’ equity,  

answer assertive;