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 Mango Corporation for the year ended December 31, 2018 (amounts in billions).

	2018	2017
Revenues	$ 220	$ 186
Costs of Purchased Crude Oil and Products	126	100
Other Operating Costs	66	75
Income before Income Tax Expense	28	11
Income Tax Expense	8	—
Net Income	$ 20	$ 11

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 Mango 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 Mango do a better or worse job of controlling expenses other than the costs of crude oil and products in 2018 relative to 2017.
3. Mango reported average net fixed assets of $358 billion in 2018 and $356 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. Mango reported average stockholders’ equity of $168 billion in 2018 and $164 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?

PART II.

erry Companies is the largest uniform supplier in North America. Selected information from its annual report follows. For the 2019 fiscal year, the company reported sales revenue of $4.8 billion and Cost of Goods Sold of $3.0 billion.

Fiscal Year	2019	2018
Balance Sheet (amounts in millions)
Cash and Cash Equivalents	$ 410	$ 365
Accounts Receivable, Net	600	550
Inventory	265	275
Prepaid Rent and Other Current Assets	600	530
Accounts Payable	145	125
Salaries and Wages Payable	390	390
Notes Payable (short-term)	90	15
Other Current Liabilities	15	255

Required:
Assuming that all sales are on credit, compute the following ratios for 2019. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

PART III.

Columbia Associates declared and paid a cash dividend of $6,700 in the current year. Its comparative financial statements, prepared at December 31, reported the following summarized information:

	Current Year	Previous Year
Income Statement
Sales Revenue	$ 115,000	$ 103,000
Cost of Goods Sold	54,000	50,000
Gross Profit	61,000	53,000
Operating Expenses	37,000	33,800
Interest Expense	4,100	4,100
Income before Income Tax Expense	19,900	15,100
Income Tax Expense (30%)	5,970	4,530
Net Income	$ 13,930	$ 10,570
Balance Sheet
Cash	$ 70,805	$ 37,000
Accounts Receivable, Net	18,000	13,000
Inventory	26,000	39,000
Property and Equipment, Net	96,000	106,000
Total Assets	$ 210,805	$ 195,000
Accounts Payable	$ 43,000	$ 34,900
Income Tax Payable	1,025	550
Notes Payable (long-term)	41,000	41,000
Total Liabilities	85,025	76,450
Common Stock (par $10)	90,600	90,600
Retained Earnings	35,180	27,950
Total Liabilities and Stockholders’ Equity	$ 210,805	$ 195,000

Required:

1. Compute the gross profit percentage in the current and previous years. Are the current-year results better, or worse, than those for the previous year?
2. Compute the net profit margin for the current and previous years. Are the current-year results better, or worse, than those for the previous year?
3. Compute the earnings per share for the current and previous years. Are the current-year results better, or worse, than those for the previous year?
4. Stockholders’ equity totaled $101,000 at the beginning of the previous year. Compute the return on equity (ROE) ratios for the current and previous years. Are the current-year results better, or worse, than those for the previous year?
5. Net property and equipment totaled $111,000 at the beginning of the previous year. Compute the fixed asset turnover ratios for the current and previous years. Are the current-year results better, or worse, than those for the previous year?
6. Compute the debt-to-assets ratios for the current and previous years. Is debt providing financing for a larger or smaller proportion of the company’s asset growth?
7. Compute the times interest earned ratios for the current and previous years. Are the current-year results better, or worse, than those for the previous year?
8. After Columbia Associates released its current year’s financial statements, the company’s stock was trading at $19. After the release of its previous year’s financial statements, the company’s stock price was $16 per share. Compute the P/E ratios for both years. Does it appear that investors have become more (or less) optimistic about Columbia’s future success?

Answer rating: 100% (QA)

PART 1 1a 2017 2018 Revenues 232 274 Cost of purchased crude oil and products 124 157 Gross profit 108 117 Gross profit percentage Gross profit Revenues For 20174655108232 For 20184270117274 1bLikely ... View the full answer