E13-2 (Algo) Computing and Interpreting Profitability Ratios [LO 13-4, LO 13-5] The average price of a...

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E13-2 (Algo) Computing and Interpreting Profitability Ratios [LO 13-4, LO 13-5] The average price of a gallon of gas in 2018 increased $0.30 (12.4 percent) from $2.42 in 2017 to $2.72 in 2018. Let's see whether these changes are reflected in the income statement of Fawkes Manufacturing for the year ended December 31, 2018 (amounts in billions). Revenues Costs of Purchased Crude Oil and Products Other Operating Costs Income before Income Tax Expense Income Tax Expense Net Income 2018 $ 258 2017 $ 218 148 117 78 88 m 32 13 9 $ 23 $13 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 Fawkes likely to earn more or less gross profit from each dollar of sales in 2019? 2. Compute the net profit margin for each year. Did Fawkes do a better or worse job of controlling expenses other than the costs of crude oil and products in 2018 relative to 2017. 3. Fawkes reported average net fixed assets of $370 billion in 2018 and $368 billion 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. Fawkes reported average stockholders' equity of $180 billion in 2018 and $176 billion 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 or 2017? E13-2 (Algo) Computing and Interpreting Profitability Ratios [LO 13-4, LO 13-5] The average price of a gallon of gas in 2018 increased $0.30 (12.4 percent) from $2.42 in 2017 to $2.72 in 2018. Let's see whether these changes are reflected in the income statement of Fawkes Manufacturing for the year ended December 31, 2018 (amounts in billions). Revenues Costs of Purchased Crude Oil and Products Other Operating Costs Income before Income Tax Expense Income Tax Expense Net Income 2018 $ 258 2017 $ 218 148 117 78 88 m 32 13 9 $ 23 $13 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 Fawkes likely to earn more or less gross profit from each dollar of sales in 2019? 2. Compute the net profit margin for each year. Did Fawkes do a better or worse job of controlling expenses other than the costs of crude oil and products in 2018 relative to 2017. 3. Fawkes reported average net fixed assets of $370 billion in 2018 and $368 billion 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. Fawkes reported average stockholders' equity of $180 billion in 2018 and $176 billion 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 or 2017?