ACCT205 Week 5 Discussions and Responses.docx

# There is also the debt to equity ratio that relates

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total ratio that allows the lender to monitor the proportion asset pool that is financed with debt. There is also the debt-to-equity ratio that relates total debt to total equity, and times-interest-earned ratio that is used to evaluate debt service capacity. These ratios are monitored carefully as they bring out issues related to the capability of maintaining a long-term structural debt and whether or not a company can service its debts. “comparative analysis requires careful consideration of the industry that a business operates in.” Wainwright, (Ed.). (2012). Wainwright, S. K. (Ed.). (2012). Principles of Accounting: Volume I [Electronic version]. Retrieved from Discussion 2 Above is a comparative income statement for Cecil, Inc. for the years 2010, 2011, and 2012. Calculate the net-profit margin for each of these years. Comment on the profit margin trend. NOTES Since the percentage of net profit margin was reduced from year to year, the profitability of the company decreased over the three years. While the cost of maintenance decreased over the three years, the rising costs of salaries, fuel, total operating expenses, operating income, sales and administrative expense and interest expense all increased over the three-year period. Despite the gradual increase in overall operating income during this time, there has not been enough increase in revenue to balance out the increasing expenses, therefore, the company's profit margin is trending downward. Although the revenue increased each year the interest expense also increased drastically over the years along with many other expenses causing the net income to decrease. Cecil, Inc.’s expenses go up each year and their net profit goes down with each year. My Response Calculate the net-profit margin for each of these years. I calculated the net-profit margin by taking the net income and divided it by revenue times 100 to get the net-profit margin for each year. As Wainwright stated, “the goal is to compute how effectively assets and equity are being used to generate profits.” (2012). Year Ending 2010 – 9% = \$3,000 Net Income/\$33,000 Revenue x 100 Year Ending 2011 – 6% = \$2,000 Net Income/\$35,000 Revenue x 100 Year Ending 2012 = 5% = \$2,000 Net Income/\$35,000 Revenue x 100

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Comment on the profit margin trend. Cecil, Inc. Years 2010, 2011 and 2012 all had a decrease in percentages of the net-profit margin. The company profits for these years had a decrease. Although, revenue did have increases every year, the net profits decreased for those same years. The decreases in net income are caused by increases in cost, such as
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