### Net Profit Margin Analysis#### 2-a. Net Profit Margin for the Years- **2014:** ____%- **2015:** ____%#### 2-b. Evaluation of Expense Control- Did the company do a better job controlling expenses in 2015 compared to 2014? - ⃝ Better Job - ⃝ Worse JobIn this section, the table provides a framework for recording the Net Profit Margin percentages for the years 2014 and 2015. Fill in the corresponding percentages in the table. Following the numerical entry, there is an evaluative question that prompts the user to consider whether the company managed its expenses better or worse in 2015 versus 2014. The user needs to select one option by marking the appropriate circle. This exercise encourages students to analyze and compare the financial performance of a company over two years and to make judgments on the company's expense management strategies. **Income Statement Analysis of Insignia Corporation (2014-2015)**The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 to $2.40 in 2015. Let’s examine how these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions).| | 2015 | 2014 ||----------------|-------|-------|| Revenues | $220 | $238 || Cost of Purchased Crude Oil and Products | 120 | 126 || Other Operating Costs | 57 | 53 || Income before Income Tax Expense | 43 | 59 || Income Tax Expense | 19 | 22 || Net Income | $24 | $37 |---**Required:**1. **Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016?**2. **Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014.**3. **Insignia reported average net fixed assets of $165 billion in 2015 and $136 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014?**4. **Insignia reported average stockholders’ equity of $155 billion in 2015 and $136 billion in 2014. The company has not issued preferred stock. Compute the return on equity ratios for both years. Did the company generate greater returns for stockholders in 2015 or 2014?**---**Graph/Diagram Explanation:**The table provided in the income statement details the financial performance of Insignia Corporation for the years 2014 and 2015. It lists Revenues, Costs, Income before taxes, Income Tax Expense, and Net Income for both years for easy

The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Let's see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2015 $220 2014 $238 Revenues Cost of Purchased Crude Oil and Products 120 126 Other Operating Costs Income before Income Tax Expense Income Tax Expense 57 53 43 59 19 22 Net Income $ 24 $ 37 Required: 1. Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016? 2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014. 3. Insignia reported average net fixed assets of $165 billion in 2015 and $136 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014?

The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Let's see whether these changes are reflected in the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2015 $220 2014 $238 Revenues Cost of Purchased Crude Oil and Products 120 126 Other Operating Costs Income before Income Tax Expense Income Tax Expense 57 53 43 59 19 22 Net Income $ 24 $ 37 Required: 1. Compute the gross profit percentage for each year. Assuming that the change from 2014 to 2015 is the beginning of a sustained trend, is Insignia likely to earn more or less gross profit from each dollar of sales in 2016? 2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Insignia did a better or worse job of controlling expenses other than the costs of crude oil and products in 2015 relative to 2014. 3. Insignia reported average net fixed assets of $165 billion in 2015 and $136 billion in 2014. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2015 or 2014?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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