QUESTION 21 Use the following information for LA Theaters to

QUESTION 21 Use the following information for LA Theaters to answer the question Finsncial ratios for the years ended December 31, 2016 2015 Debt ratio(%) Long-term debt to total capital (%) Times interest earned (times) 66. 11 71.7 54.4 64.8 0.6 0.2 3.0 1.2 0.9 0.8 0.6 0.2 times Fixed charge coverage (times) Cash flow adequacy (timers) Profitability Gross profit margin (6) 62.0 61.7 4.4 12 ing profit margin (%) Net profit margin(%) 17.0 1.4 3.3 (4.3) Return on assets (%) Return on equity Cash return on assets (%) 10.20.5 Which statement below is true with regard to the profitability of LA Theaters? OLA Theaters has been unable to translate profits into cash in 2016 and 2015. O The high cost of goods sold is most likely the cause of the loss in 2015 O Operating expenses have increased for LA Theaters in 2016. O LA Theaters has improved all profit margins most likely due to better cost control and/or increased prices, as well as a reduction of interest expense due to debt reduction.

Solution

The Option 4 is correct answer:-

“LA Theatres has improved all profit margins most likely due to better cost control and/or increased prices as well as a reduction of interest expense due to debt reduction” statement is true with regard to profitability of LA Theatre.

Gross profit Margin has increased from 61.70% (2015) to 62 % in 2016, which represent GP ratio increased by 0.30%.

Net profit Margin has increased from (11.3%) to 5.4 % in 2016, which represent increased in NP ratio by 16.7% and company now come in profitable condition.

Operating profit Margin has increased from 1.2% (2015) to 4.4 % in 2016, which represent increased by 3.2%.