Financial statement data for years ending December 31 for DePuy Company are shown below.
2014 2013Net sales $5,510,000 $4,880,000Fixed assets:Beginning of year 1,600,000 1,450,000End of year 2,200,000 1,600,000a. Determine the fixed asset turnover ratio for 2014 and 2013.b. Does the change in the fixed asset turnover ratio from 2013 to 2014 indicate a favorable or an unfavorable trend?Answer:
a. Fixed Asset Turnover:Net sales………………………………Fixed assets:Beginning of year………………End of year………………………Average fixed assets………………2014 2013$5,510,000 $4,880,000$1,600,000 $1,450,000$2,200,000 $1,600,000$1,900,000 $1,525,000Fixed asset turnover………………[($1,600,000 + $2,200,000) ÷ 2] [($1,450,000 + $1,600,000) ÷ 2]2.9 3.2($5,510,000 ÷ $1,900,000) ($4,880,000 ÷ $1,525,000)b. The decrease in the fixed asset turnover ratio from 3.2 to 2.9 indicates anunfavorable trend in the efficiency of using fixed assets to generate sales.
Financial statement data for the years ended December 31 for Dovetail Corporation are shown below.
2014 2013
Net income $448,750 $376,000
Preferred dividends $40,000 $40,000
Average number of common shares outstanding 75,000 shares 60,000 shares
a. Determine the earnings per share for 2014 and 2013.b. Does the change in the earnings per share from 2013 to 2014 indicate a favorable or an unfavorable trend?Answer:
a. 2014: Earnings per Share = Avg. Number of Common Shares Outstanding$448,750 – $40,000 = 75,000 shares$408,750 = 75,000 shares= $5.452013: Earnings per Share = Net Income – Preferred DividendsAvg. Number of Common Shares Outstanding$376,000 – $40,000 = 60,000 shares$336,000 = 60,000 shares= $5.60b. The decrease in the earnings per share from $5.60 to $5.45 indicates anunfavorable trend in the company’s profitability.
