Computation of Profitability Ratios
Shown Below Are Selected Data from a Recent

question 140

Essay

Computation of profitability ratios
Shown below are selected data from a recent annual report of Tall Oaks Co. (Dollar amounts are in thousands.)
Compute for the year the company's:
$\begin{array}{|l|r|r|}\hline \text { Total assets } & \begin{array}{c}\text { Beginning } \\\text { of the Year }\end{array} & \begin{array}{c}\text { End of } \\\text { the Year }\end{array} \\\hline\text { Total assets } &\$7,400&\$8,100\\\hline \text { Total stockholders equity } & \$ 3,900 & \$ 4,600 \\\hline \text { Net sales } & & \$ 14,000 \\\hline \text { Gross profit } && \$ 5,000 \\\hline \text { Operating income } && \$ 1,400 \\\hline \text { Net income } && \$ 1,000 \\\hline\end{array}$ $$\begin{array} { | l | l | l | } \hline \text { (a) } & \text { Gross profit rate. } &\_\_\_\_ \% \\\hline \text { (b) } & \text { Return on average total assets } &\_\_\_\_ \% \\\hline \text { (c) } & \text { Return on average total stockholders' equity } &\_\_\_\_ \% \\\hline & & \\\hline\end{array}$$

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Definitions:

Average Cost of Production

The total cost of production divided by the quantity of output produced, indicating the cost to produce each unit of output.

Total Profit

The net profit a company earns, calculated by deducting all costs from its total income.

Profits

The financial gain obtained when the revenues generated from business activities exceed the expenses, costs, and taxes involved in maintaining the operation.

Total Costs

The aggregate cost of producing goods or services, inclusive of fixed and variable expenses.