Profitability ratios
Response to the following problem:
The Haines Corp. shows the following financial data for 2009 and 2010.
2009 2010
Sales $ 2,500,000 $3,000,000
Cost of goods sold 1,500,000 1,875,000
Gross Profit 1,000,000 1,125,000
Selling & administrative expense 205,000 210,000
Operating Profit 795,000 915,000
Interest expense 40,000 45,000
Income before taxes 755,000 870,000
Taxes (35%) 264,250 304,500
Income after taxes $490,750 $565,500
For each year, compute the following and indicate whether it is increasing or decreasing profitability in 2010 as indicated by the ratio.
a. Cost of goods sold to sales.
b. Selling and administrative expense to sales.
c. Interest expenses to sales.