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11 Dec 2019

6. Explain the possible causes of the trends in the following data:

Year 1

Year 2

Year 3

Gross Profit Margin

49%

31%

28%

Operating Profit Margin

9%

12%

19%

Net Profit Margin

7%

25%

11%

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Deanna HettingerLv2
13 Dec 2019
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Related questions

Please take a look below at the two companies' financial ratios.Identify the industries these two companies operate in. Pleaseinclude good quality analysis and arguments (e.g. this ratioindicates that... and that ratio indicates the other,... and takentogether these ratios indicate that.... (and so forth)) :

Company A Company B

P/E Ratio: 30

Price/Sales: 6

Price/Book Value of Equity: 7.5

Profit Margin: 20%

Operating Margin: 25%

Return on Assets (ROA): 6%

Return On Equity (ROE): 25%

Current Ratio: 3

P/E Ratio: 17

Price/Sales: 0.6

Price/Book Value of Equity: 3

Profit Margin: 3%

Operating Margin: 5%

Return on Assets (ROA): 7%

Return On Equity (ROE): 15%

Current Ratio: 1

The Vanguard Group, Inc. has compiled the following financial statements and comparative
financial raios for the year-end review.
________________________________________________________________________________
Balance Sheet
Vanguard Group, Inc
December 31, 2007
________________________________________________________________________________
Assets
Current assets
Cash $118,750
Accounts receivable 296,250
Inventory 303,750
Total current assets $718,750
Gross fixed assets $625,000
Less: Accumulated depreciation 93,750
Net fixed assets 531,250
Total assets $1,250,000
Liabilities and stockholders' equity
Current liabilities
Accounts payable $111,250
Notes payable 211,250
Accruals 108,750
Total current liabilities $431,250
Long-term debt 235,000
Total liabilities $666,250
Stockholders' equity
Common stock 318,750
Retained earnings 265,000
Total stockholders' equity $583,750
Total liabilities and stockholders' equity $1,250,000
____________________________________________________________________________________
Income Statement
Vanguard Group, Inc.
for the Year Ended December 31, 2007
____________________________________________________________________________________
Sales revenue $1,680,000
Cost of sales 1,362,480
Gross profits $317,520
Less: Operating expenses
Selling expense $125,600
General and administrative expense 81,600
Depreciation expense 24,000
Total operating expense $231,200
Operating profits $86,320
Less: Interest expense 15,600
Net profits before taxes $70,720
Less: Taxes (40%) 28,288
Net profits after taxes $42,432
_____________________________________________________________________________________
_____________________________________________________________________________________
Historical and Industry Average Ratios
Vanguard Group, Inc.
_____________________________________________________________________________________
Ratio 2005 2006 2007 Industry Average
______________________________________________________________________________________ 2007
Current ratio 1.6 1.7 1.6
Quick ratio 0.9 1 0.9
Inventory turnover 6 5 8.4
Average collection period 40 days 50 days 40 days
Total asset turnover 1.5 1.5 1.75
Debt ratio 60% 56% 50%
Times interest earned 2.5 3.5 4
Gross profit margin 20% 19.70% 20%
Operating profit margin 4.70% 4.80% 6%
Net profit margin 2.00% 2.30% 3%
Return on investment 3.00% 3.50% 5.25%
Return on equity 7.50% 7.95% 10.50%
______________________________________________________________________________________
1. Calculate the firm's 2007 financial ratios.
2. What is the meaning of each ratio looking at its trend and its comparison to the industry average?

1.) Explain how a company could have a decreasing gross profitmargin but an increasing operating profit margin.

2.) What is an example of an industry that would need to spend aminimum amount on advertising to be competitive? On research anddevelopment?

3.) Alpha Company purchased 30% of the voting common stock ofBeta Company on January 1 and paid $500,000 for the investment.Beta Company reported $100,000 of earnings for the year and paid$40,000 in cash dividends. Calculate investment income and thebalance sheet investment account for Alpha Company under the costmethod and under the equity method.

4.) Discuss the four items that are included in a company’scomprehensive income.

5.) Explain what can be found on a statement of stockholders’equity.

6.) Why is the bottom line figure, net income, not necessarily agood indicator of a firm’s financial success?

7.) Using the excerpt from the Moon Company’s annual report,calculate any profit measures deemed necessary and discuss theimplications of the profitability of the company.

8.) LA Theatres Inc. has two distinct revenue sources, ticketand concession revenues. The following information from LA TheatresInc. income statements for the past three years is

available:

(inmillions) 2016 2015 2014

Ticketrevenue $1,731 $1,642 $1,120

Concessionrevenue 792 687 411

Totalrevenue $2,523 $2,329 $1,531

Cost of goodssold—tickets $ 951 $ 854 $ 549

Cost of goodssold—concessions 70 69 48

Total cost of goodssold $1,021 $ 923 597

Grossprofit $1,502 $1,406 $ 934

a.) Calculate gross profit margins for tickets and concessionsfor all three years. Calculate an overall gross profit margin forLA Theatres Inc. for all three years.

b.) Analyze the changes in gross profit margin for all threeyears.

9.) Writing Skills Problem:

Income statements are presented for the Elf Corporation for theyears ending December 31, 2016, 2015, and 2014.

Elf Corporation Income Statements for theYears

Ending December 31, 2016, 2015, and 2014

(inmillions) 2016 2015 2014

Sales $700 $650 $550

Cost of goodssold 300 325 275

Grossprofit $350 $325 $275

Operating expenses:

Administrative 100 100 100

Advertising andmarketing 50 75 75

Operatingprofit $200 $150 $100

Interestexpense 70 50 30

Earnings beforetax $130 $100 $ 70

Tax expense(50%) 65 50 35

Netincome $65 $50 $ 35

Required: What a one-paragraph analysis of ElfCorporation’s profit performance for the period.

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