Chapter 13, Problem 5BTN

To determine

(1)

Introduction:

Profit margin ratio is calculated by dividing net income by the net sales.

To calculate:

Profit margin ratio.

Answer to Problem 5BTN

Profit margin ratio for 2013 = 11.48%

Profit margin ratio for 2012 = 9.94%

Explanation of Solution

$Profitmarginratio=\frac{Netincome}{Netsales}$

Profit margin ratio for 2013 = $820,470 / $7,146,079

= 11.48%

Profit margin ratio for 2012 = $660,931 / $6,644,252

= 9.94%

To determine

(2)

Introduction:

Gross profit ratio is a part of profitability ratio that is calculated by dividing gross profit by net sales.

To calculate:

Gross-profit ratio.

Answer to Problem 5BTN

Gross-profit ratio for 2013 = 45.91%

Gross-profit ratio for 2012 = 43.04%

Explanation of Solution

$Gross-profitratio=\frac{Grossprofit}{Netsales}\times 100$

Gross profit = Net sales- COGS

Gross-profit ratio for 2013 = $3,280,848 / $7,146,079

= 45.91%

Gross-profit ratio for 2012 = $2,859,882 / $6,644,252

= 43.04%

To determine

(3)

Introduction:

Return on total asset is a ratio that calculated by dividing earnings before income tax by total assets.

To calculate:

Return on total asset.

Answer to Problem 5BTN

Return on total assets in 2013 = 26.49%

Return on total assets in 2012 = 24.25%

Explanation of Solution

$Returnontotalassets=\frac{Earningsbeforeinterestandtaxes}{AverageTotalassets}$

Average total assets = (Opening bal. + Closing bal.)/2

	2013	2012
Opening Assets	$4,754,839	$4,407,094
Closing assets	$5,357,488	$4,754,839
Average assets	$5,056,163.5	$4,580,966.5

Return on total assets in 2013 = $1,339,700 / $5,056,163.5

= 26.49%

Return on total assets in 2012 = $1,111,100/ $4,580,966.5

= 24.25%

To determine

(4)

Introduction:

Return on common stockholder’s equity is measured by dividing net income by average shareholder’s equity. It helps in measuring the financial performance of a company.

To calculate:

Return on common stockholder’s equity.

Answer to Problem 5BTN

Return on common stockholder’s equity for 2013 = 61.58%

Return on common stockholder’s equity for 2012 = 68.51%

Explanation of Solution

$Returnoncommonstockholders\text{'}equity=\frac{Netincome}{AverageStockholders\text{'}equity}$

Average Shareholders’ equity = (Opening bal. + Closing bal.)/2

	2013	2012
OpeningShareholders’ Equity	$1,048,373	$880,943
ClosingShareholders’ Equity	$1,616,052	$1,048,373
Average Shareholders’ Equity	$1,332,212.5	$964,658

Return on common stockholder’s equity for 2013 = $820,470 / $1,332,212.5

= 61.58%

Return on common stockholder’s equity for 2012 = $660,931 /$964,658

= 68.51%

To determine

(5)

Introduction:Earnings per share (EPS) is that part of the profit of the company which is allocated to common stock per share. Earnings per share acts as an indicator of a company’s profitability.

To calculate:

Basic net income per common share.

Answer to Problem 5BTN

Basic net income per common share 2013 = $3.76

Basic net income per common share 2012 = $3.01

Explanation of Solution

$Earningpershareratio=\frac{Netincome-\text{Preferred }dividends}{Average\text{ numbers of common shares outstanding}}$

Basic net income per common share 2013 = $3.76

Basic net income per common share 2012 = $3.01

• The values are taken from consolidated income statement

Analysis and interpretation: The performance of Hershey’s have improved in all the areas.