Connect 2-Semester Access Card for Fundamental Accounting Principles
Connect 2-Semester Access Card for Fundamental Accounting Principles
22nd Edition
ISBN: 9780077632755
Author: John Wild
Publisher: McGraw-Hill Education
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Chapter 15, Problem 9BTN
To determine

Profit Margin:

A profit margin is a profitability ratio which is computed by dividing the net income by the net sales of a company. It expresses the percentage of profit based on the net sales of a company.

Return on Total Assets:

Return on total assets measures the efficiency of a company in utilizing their total assets towards generating optimal profit. It is computed by dividing the net income earned during a particular by the average total assets of the company during the same period.

Total Asset Turnover:

It is an efficiency ratio which measures the ability of a company generating sales from the total assets of the company. Total asset turnover ratio is ascertained by dividing the net sales by the average total assets of a company.


1. Computation of Samsung’s return on total assets and its components of profit margin and total asset turnover of most recent two years.

2. Which of these three companies has the highest return on total assets? Highest profit margin? Highest total asset turnover? Interpret these results for the (a) current year and (b) Prior year.

Expert Solution & Answer
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Answer to Problem 9BTN

Solution:

1.

    SAMSUNGCurrent YearOne Prior Year
    Profit Margin
    13.3%
    11.9%
    Total Asset Turnover
    1.16
    1.19
    Return on Total Assets
    15.4%
    14.2%

2.

    SAMSUNGAPPLEGOOGLE
    Current YearOne Prior YearCurrent YearOne Prior YearCurrent YearOne Prior Year
    Profit Margin
    13.3%
    11.9%
    21.7%
    26.7%
    21.6%
    21.4%
    Total Asset Turnover
    1.16
    1.19
    0.89
    1.07
    0.58
    0.60
    Return on Total Assets
    15.4%
    14.2%
    19.3%
    28.6%
    12.5%
    12.8%

During the current year, Apple has the highest profit margin and return on total asset with 21.7% and 19.3% respectively and Samsung has the highest total asset turnover with 1.16. Also in the one prior year, the Apple Corporation has the highest profit margin and return on total asset with 26.7% and 28.6 respectively and Samsung has the highest total asset turnover with 1.19.

Explanation of Solution

1.

  Return on Total Assets =  Net income Average Total Assets     Current Year=  30,474,764 197,573,294*                            = 15.4%  Average Total Assets =  181,071,570 + 214,075,0182                                     = 197,573,294*      One Year Prior=  23,845,285  168,435,917*                               = 14.2% Average Total Assets =  155,800,263 + 181,071,5702                                    = 168,435,917*


  Profit Margin =  Net Income Net Sales  Current Year =  30,474,764 228,692,667                      = 13.3%One Prior Year =  23,845,285 201,103,613                          = 11.9% Total Asset Turnover =  Net Sale Average Total Asset     Current Year      = 228,692,667 197,573,294                               = 1.16 One Prior Year =  201,103,613 168,435,917                          = 1.19

2. Computation of Return on Total Asset
  Return on Total Asset = Profit margin X Total Asset Turnover       Apple     Current Year = 21.7% X 0.89% = 19.3%     One Prior Year = 26.7% X 1.07% = 28.6%       Google       Current Year = 21.6% X 0.58% = 12.5%       One Prior Year = 21.4% X 0.60% = 12.8%

Conclusion

It is concluded from the results that the Apple Corporation has the highest profit margin and return on total asset and Samsung Company has the highest total asset turnover for most recent two years.

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Chapter 15 Solutions

Connect 2-Semester Access Card for Fundamental Accounting Principles

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