Monica Wish is the principal stockholder and president of Wish Linens, Inc., a wholesaler of fine linens. Because Wish was not satisfied with the company’s earnings in 2010, she raised prices in 2011. As a result, gross margin from sales increased from 30 percent in 2010 to 35 percent in 2011. Wish is pleased that net income also increased between 2010 and 2011, as shown in the comparative income statements that follow.

Total assets for Wish Linens at the end of 2009, 2010, and 2011 were $1,246,780, $1,386,810, and $1,536,910, respectively.

1. Did Wish Linens’ profitability really improve? (Hint: Compute profit margin and return on assets.)

2. What factors did Wish overlook in evaluating the profitability of the company?

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2011 2010 Revenues Net sales $1,222,600 ,386,400 Costs and expenses $ 794,690 970,480 305,008 $1,103,088 S1,275,488 S 119,512 110,912 28,000 S 82,912 Cost of goods sold Selling and administrative expenses Total costs and expenses 308,398 Income before income taxes Income taxes Net incomc 30,000 $ 89,512