Q20E Micatin, Inc.鈥檚 comparative in... [FREE SOLUTION]

Chapter 15: Q20E (page 842)

Micatin, Inc.鈥檚 comparative income statement follows. The 2017 data are given as needed.

MICATIN INC.
Comparative Income Statement
Years Ended December 31, 2019, and 2018
Dollars in thousands
2019
2018
2017
Net Sales Revenue
$ 181,000
$ 160,000
Cost of Goods Sold
93,500
86,500
Selling and Administrative Expenses
45,000
40,500
Interest Expense
8,000
12,000
Income Tax Expense
11,000
10,500
Net Income
$ 23,500
$ 10,500
Additional data:
Total Assets
$ 209,000
$ 187,000
$ 167,000
Common Stockholders鈥� Equity
96,000
91,500
80,500
Preferred Dividends
2,000
2,000
0
Common Shares Outstanding During the Year
15,000
15,000
10,000
Requirements
Calculate the profit margin ratio for 2019 and 2018.
Calculate the rate of return on total assets for 2019 and 2018.
Calculate the asset turnover ratio for 2019 and 2018.
Calculate the rate of return on common stockholders鈥� equity for 2019 and 2018.
Calculate the earnings per share for 2019 and 2018.
Calculate the 2019 dividend payout on common stock. Assume dividends per share for common stock are equal to $1.13 per share.
Did the company鈥檚 operating performance improve or deteriorate during 2019?

Short Answer

Expert verified

S. no.	Ratio	2019	2018
1	Profit margin ratio	13.0%	6.6%
2	Return on total assets	15.9%	12.7%
3	Asset turnover ratio	0.91times	0.90 times
4	Return on common stockholders鈥� equity	22.9%	9.9%
5	Earnings per share	$1.43/share	$0.68/share
6	The dividend payout on common stock for 2019 is 19.00%
7	Yes, the company鈥檚 operating performance improve

Step by step solution

Meaning of Profit margin ratio

The profit margin ratio shows the rate of income that remains after all business expenses have been paid. Formula to calculate the profit margin ratio is as follows:

$笔谤辞蹿颈迟鈥尘补谤驳颈苍鈥塺补迟颈辞鈥� = \frac{狈别迟鈥塱苍肠辞尘别}{狈别迟鈥塻补濒别蝉}$

(1) Calculate the profit margin ratio for 2019 and 2018

2019

$\begin{matrix} 笔谤辞蹿颈迟鈥尘补谤驳颈苍鈥塺补迟颈辞鈥� = \frac{狈别迟鈥塱苍肠辞尘别}{狈别迟鈥塻补濒别蝉} \\ = \frac{$ 23, 500}{$ 181, 000} \\ = 0.130 鈥塷谤鈥� 13.0 % \end{matrix}$

2018

$\begin{matrix} 笔谤辞蹿颈迟鈥尘补谤驳颈苍鈥塺补迟颈辞鈥� = \frac{狈别迟鈥塱苍肠辞尘别}{狈别迟鈥塻补濒别蝉} \\ = \frac{$ 10, 500}{$ 160, 000} \\ = 0.066 鈥塷谤鈥� 6.6 % \end{matrix}$

(2) Calculate the rate of return on total assets for 2019 and 2018.

2019

$\begin{matrix} 搁补迟别鈥塷蹿鈥塺别迟耻谤苍鈥塷苍鈥塼辞迟补濒鈥塧蝉蝉别迟 = \frac{狈别迟鈥塱苍肠辞尘别 + 滨苍迟别谤别蝉迟鈥塭虫辫别苍蝉别}{础惫别谤补驳别鈥塼辞迟补濒鈥塧蝉蝉别迟蝉} \\ = \frac{$ 23, 500 + $ 8, 000}{(\frac{$ 209, 000 + $ 187, 000}{2})} \\ = 0 .159 鈥塷谤鈥� 15 .9 % \end{matrix}$

2018

$\begin{matrix} 搁补迟别鈥塷蹿鈥塺别迟耻谤苍鈥塷苍鈥塼辞迟补濒鈥塧蝉蝉别迟 = \frac{狈别迟鈥塱苍肠辞尘别 + 滨苍迟别谤别蝉迟鈥塭虫辫别苍蝉别}{础惫别谤补驳别鈥塼辞迟补濒鈥塧蝉蝉别迟蝉} \\ = \frac{$ 10, 500 + $ 12, 000}{(\frac{$ 187, 000 + $ 167, 000}{2})} \\ = 0 .127 鈥塷谤鈥� 12 .7 % \end{matrix}$

(3) Calculate the asset turnover ratio for 2019 and 2018.

2019

$\begin{matrix} 础蝉蝉别迟鈥塼耻谤苍辞惫别谤鈥塺补迟颈辞 = \frac{狈别迟鈥塻补濒别蝉鈥塺evenue}{础惫别谤补驳别鈥塼辞迟补濒鈥塧蝉蝉别迟} \\ = \frac{$ 181, 000}{(\frac{$ 209, 000 + $ 187, 000}{2})} \\ = 0 .91 鈥塼颈尘别蝉 \end{matrix}$

2018

$\begin{matrix} 础蝉蝉别迟鈥塼耻谤苍辞惫别谤鈥塺补迟颈辞 = \frac{狈别迟鈥塻补濒别蝉鈥塺evenue}{础惫别谤补驳别鈥塼辞迟补濒鈥塧蝉蝉别迟} \\ = \frac{$ 160, 000}{(\frac{$ 187, 000 + $ 167, 000}{2})} \\ = 0 .90 鈥塼颈尘别蝉 \end{matrix}$

(4) Calculate the rate of return on common stockholders’ equity

2019

$\begin{matrix} 搁补迟别鈥塷蹿鈥塺别迟耻谤苍鈥塷苍鈥塩辞尘尘辞苍鈥塻迟辞肠办丑辞濒诲别谤鈥塭辩耻颈迟测 = \frac{狈别迟鈥塱苍肠辞尘别鈭� 笔谤别蹿别谤谤别诲鈥塪颈惫颈诲别苍诲}{础惫别谤补驳别鈥塩辞尘尘辞苍鈥塻迟辞肠办丑辞濒诲别谤'蝉鈥塭辩耻颈迟测} \\ = \frac{$ 23, 500 鈭� $ 2, 000}{(\frac{$ 96, 000 + $ 91, 500}{2})} \\ = 0 .229 鈥塷谤鈥� 22 .9 % \end{matrix}$

2018

$\begin{matrix} 搁补迟别鈥塷蹿鈥塺别迟耻谤苍鈥塷苍鈥塩辞尘尘辞苍鈥塻迟辞肠办丑辞濒诲别谤鈥塭辩耻颈迟测 = \frac{狈别迟鈥塱苍肠辞尘别鈭� 笔谤别蹿别谤谤别诲鈥塪颈惫颈诲别苍诲}{础惫别谤补驳别鈥塩辞尘尘辞苍鈥塻迟辞肠办丑辞濒诲别谤'蝉鈥塭辩耻颈迟测} \\ = \frac{$ 10, 500 鈭� $ 2, 000}{(\frac{$ 91, 500 + $ 80, 500}{2})} \\ = 0 .090 鈥塷谤鈥� 9 .9 % \end{matrix}$

(5) Calculate the earnings per share for 2019 and 2018

2019

$\begin{matrix} 贰补谤苍颈苍驳鈥塸别谤鈥塻丑补谤别 = \frac{狈别迟鈥塱苍肠辞尘别鈭� 笔谤别蹿别谤谤别诲鈥塪颈惫颈诲别苍诲}{奥别颈驳丑迟别诲鈥塧惫别谤补驳别鈥塶耻尘产别谤鈥塷蹿鈥塩辞尘尘辞苍} \\ = \frac{$ 23, 500 鈭� $ 2, 000}{15, 000 鈥� shares} \\ = $ 1 .43 / share \end{matrix}$

2018

$\begin{matrix} 贰补谤苍颈苍驳鈥塸别谤鈥塻丑补谤别 = \frac{狈别迟鈥塱苍肠辞尘别鈭� 笔谤别蹿别谤谤别诲鈥塪颈惫颈诲别苍诲}{奥别颈驳丑迟别诲鈥塧惫别谤补驳别鈥塶耻尘产别谤鈥塷蹿鈥塩辞尘尘辞苍} \\ = \frac{$ 10, 500 鈭� $ 2, 000}{(\frac{15, 000 鈥塻丑补谤别蝉 + 10, 000 鈥塻补丑谤别蝉}{2})} \\ = $ 0 .68 / share \end{matrix}$

(6) Calculate the 2019 dividend pay-out on common stock

$\begin{matrix} 顿颈惫颈诲别苍诲鈥塸补测辞耻迟 = \frac{础苍苍耻补濒鈥塪颈惫颈诲别苍诲鈥塸别谤鈥塻丑补谤别}{贰补谤苍颈苍驳鈥塸别谤鈥塻丑补谤别} \\ = \frac{$ 1 .13 鈥塸别谤鈥塻丑补谤别}{$ 1 .43 鈥塸别谤鈥塻丑补谤别} \\ = 0 .790 鈥塷谤鈥� 79 .0 % \end{matrix}$

(7) Analysing the company’s performance

The company鈥檚 performance improved during 2019 based on an improvement in all ratios evaluated.

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	2018	2017
Net Income	\(71,900	\)64,300
顿颈惫颈诲别苍诲蝉鈥擟辞尘尘辞苍	22,000	22,000
顿颈惫颈诲别苍诲蝉鈥摈谤别蹿别谤谤别诲	16,800	16,800
Total Stockholders鈥� Equity at Year-End (includes 95,000 shares of common stock)	770,000	610,000
Net Income	\( 71,900	\) 64,300
Market Price per Share of Common Stock	\( 16.50	\) 10.00

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Short Answer

Step by step solution

Meaning of Profit margin ratio

(1) Calculate the profit margin ratio for 2019 and 2018

(2) Calculate the rate of return on total assets for 2019 and 2018.

(3) Calculate the asset turnover ratio for 2019 and 2018.

(4) Calculate the rate of return on common stockholders’ equity

(5) Calculate the earnings per share for 2019 and 2018

(6) Calculate the 2019 dividend pay-out on common stock

(7) Analysing the company’s performance

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MICATIN INC. Comparative Income Statement Years Ended December 31, 2019, and 2018
Dollars in thousands	2019	2018	2017
Net Sales Revenue	\( 181,000	\) 160,000
Cost of Goods Sold	93,500	86,500
Selling and Administrative Expenses	45,000	40,500
Interest Expense	8,000	12,000
Income Tax Expense	11,000	10,500
Net Income	\( 23,500	\) 10,500

Additional data:
Total Assets	\( 209,000	\) 187,000	\( 167,000
Common Stockholders鈥� Equity	96,000	91,500	80,500
Preferred Dividends	2,000	2,000	0
Common Shares Outstanding During the Year	15,000	15,000	10,000