To determine Calculate the ratios given. Explanation Calculate the ratios given. Serial Number Particulars 2016 2015 1. Gross margin percentage 45.10% (1) 43.40% (2) 2. Return on assets 23.90% (3) 15.80% (4) 3. Return on equity -68.20% (5) 102.60% (6) Table (1) There is an increase in gross margin percentage during 2016 – a higher gross margin and lower revenues states that cost of sales is managed well. There is also increase in Return on assets (ROA), stating that invested capital is used efficiently (stable net income produced with greatly decreased total assets). There is a decrease in return on equity dramatically and even turned negative. This because of the reason that there was a great stock repurchase that was accepted and executed during 2016 (financed hugely with new debt). Working notes: (1) Calculate the gross margin percentage for the year 2016: Gross margin percentage = Gross margin Total revenue( sales) = $2,868 $6,366 = 45.1 % (2) Calculate the gross margin percentage for the year 2015: Gross margin percentage = Gross margin Total revenue( sales) = $2,793 $6,440 = 43.4 % (3) Calculate return on assets for the year 2016: Return on assets = Net income Average total assets = $1,619 $5,478+$8,061 2 = 23

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Chapter 20, Problem 40E

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Chapter 20, Problem 39E

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