70.2K

Verified Solution

Link Copied!

According to the producer price index database maintained by the Bureau of Labor Statistics, the average cost of computer equipment fell 3.8 percent between January and December 2018. Lets see whether these changes are reflected in the income statement of IT Tech Incorporated for the year ended December 31, 2018.

	2018	2017
Sales Revenue	$ 115,000	$ 142,500
Cost of Goods Sold	67,500	77,500
Gross Profit	47,500	65,000
Selling, General, and Administrative Expenses	37,500	40,000
Interest Expense	650	550
Income before Income Tax Expense	9,350	24,450
Income Tax Expense	2,000	6,500
Net Income	$ 7,350	$ 17,950

Required:

1. Compute the gross profit percentage for each year. Assuming that the change from 2017 to 2018 is the beginning of a sustained trend, is IT Tech likely to earn more or less gross profit from each dollar of sales in 2019?
2. Compute the net profit margin for each year. Given your calculations here and in requirement 1, explain whether Zigga did a better or worse job of controlling operating expenses in 2018 relative to 2017.
3. IT Tech reported average net fixed assets of $55,700 in 2018 and $46,600 in 2017. Compute the fixed asset turnover ratios for both years. Did the company better utilize its investment in fixed assets to generate revenues in 2018 or 2017?
4. IT Tech reported average stockholders equity of $55,500 in 2018 and $42,300 in 2017. 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 2018 than in 2017?

Answer & Explanation Solved by verified expert

See Answer