A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2. The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company's profit margin, total asset turnover and return on total assets for Year 1 and Year 2. Comment on the results.
What will be an ideal response?
The company did not increase its profit margin from Year 1 to Year 2; however, it did increase its total asset turnover, mainly because total assets declined with no ill effects on sales. The effect is an overall increase in return on total assets.
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