
(a)
Introduction:
Profitability ratios are those ratios that helps a company to access the ability of business to generate earnings, revenue, elements of operation that contributes to the profit, shareholders equity etc.
To calculate: The profitability ratios of Steele’s for the year 2018 and 2019.

Answer to Problem 81E
Gross profit percentage for 2019= 27.03%
Gross profit percentage for 2018 = 28.66%
Operating margin percentage for 2019 = 10.10%
Operating margin percentage for 2018 = 11.35%
Net profit margin percentage for 2019 = 5.39%
Net profit margin percentage for 2018 = 6.28%
Return on Asset for 2019 = 1.06%
Return on Asset for 2018 = 1.16%
Return on equity on 2019 = 16.61%
Return on equity on 2018 = 20.93%.
Explanation of Solution
Gross profit percentage for 2019
= 27.03%Gross profit percentage for 2018
= 28.66%
Operating margin percentage for 2019
= 10.10%
Operating margin percentage for 2018
= 11.35%
Net profit margin percentage for 2019
= 5.39%
Net profit margin percentage for 2018
= 6.28%
Return on Asset for 2019
= 1.06%
= $3,990,777.5
=
= $3,861,858.4
Let the tax rate be x
Tax rate=
= 39.36%
Return on Asset for 2018
= 1.16%
= $3,665,841.5
Tax rate=
= 38.90%
=
= $3,812,517.8
Return on equity on 2019
= 16.61%
= $2,354,455
Return on equity on 2018
= 20.93%
= $2,175,369.5.
(b)
Introduction:
Profitability ratios are those ratios that helps a company to access the ability of business to generate earnings, revenue, elements of operation that contributes to the profit, shareholders equity etc.
To explain:
What these ratios suggest about the profitability of the company and what other information will be required to know about the profitability of the company.

Answer to Problem 81E
The ratios show that the company is striving hard to improve its profitability ratios.
Explanation of Solution
The gross profit percentage of Steele’s for 2018 is 27.03% and for 2019 is 28.66% which means it has shown improvement. The operating ratio, net profit ratio and return on equity of Steele’s has also shown improvement from previous year.
The other information that will be required to know about the profitability ratios is that it is important to recognize the variation sin the profit from industry to industry as these percentages get affected by many other factors. So, it become important to find such causes.
Want to see more full solutions like this?
Chapter 12 Solutions
Cornerstones of Financial Accounting
- Please provide the accurate answer to this general accounting problem using valid techniques.arrow_forwardWhich of the following is a real account?a) Capital Accountb) Salaries Expense Accountc) Sales Revenue AccountNeed helparrow_forwardWhich of the following is a real account?a) Capital Accountb) Salaries Expense Accountc) Sales Revenue Accountd) Discount Allowedarrow_forward
- At the beginning of the recent period there were 850 units of product in a department, one-fourth completed. These units were finished and an additional 4,750 units were started and completed during the period. 720 units were still in process at the end of the period, one-fifth completed. Using the weighted-average valuation method, the equivalent units produced by the department were ____ units.arrow_forwardWhat is the main purpose of a cash flow statement?a) To report profits and lossesb) To show changes in equityc) To report cash inflows and outflowsd) To show the company's assetsneed helparrow_forwardWhat was the variable cost of goods soldarrow_forward
- Eagles Manufacturing uses the declining balance method of depreciation. They purchased a machine for $160,000 with an estimated salvage value of $20,000 and a useful life of 5 years. Using a declining balance rate of 30%, calculate the depreciation expense for the second year of the machine's use.arrow_forwardWhat is the correct answer with accounting questionarrow_forwardCan you explain the correct methodology to solve this general accounting problem?arrow_forward
- I want Solutionarrow_forwardWhat is the main purpose of a cash flow statement?a) To report profits and lossesb) To show changes in equityc) To report cash inflows and outflowsd) To show the company's assetsarrow_forwardI need help with this general accounting question using the proper accounting approach.arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningCentury 21 Accounting Multicolumn JournalAccountingISBN:9781337679503Author:GilbertsonPublisher:Cengage
