Sheet1Question 1

Data for the most recent four fiscal years of Consistent Company are given below: 20X620X520X420X3Net sales $78,000$75,000$67,000$60,000Cost of goods sold33,00032,00030,00026,000Gross profit 45,00043,00037,00034,000Operating expenses25,00022,00019,00014,000Net income20,00021,00018,00020,000

a) Prepare an analysis showing the trend percentages for the four-year period using 20X3 as the base year.

20X620X520X420X3Net sales 130%125%112%100%Cost of goods sold127%123%115%100%Gross profit 132%126%109%100%Operating expenses179%157%136%100%Net income100%105%90%100%b) What do the trend percentages indicate regarding Consistent Company's income statement data?

COGS increasing at a faster rate than sales, company needs to control cost of production. Operating expenses is increasing at a disporportionately fast rate, needs to be controlled as even though sales is plauteuing Operating expenses is not

20X320X420X520X6Net sales $60,000$67,000$75,000$78,000Cost of goods sold26,00030,00032,00033,000Gross profit 34,00037,00043,00045,000Operating expenses14,00019,00022,00025,000Net income20,00018,00021,00020,000

Sheet2Question 2A common size income statement for Creek Enterprises' 2013 operations follows. Common size Income StatementCreek Enterprises for the year ended December 31, 2013Sales revenue ($35,000,000)100%Less: Cost of goods sold65.9Gross profits34.10%Less: Operating expensesSelling expense12.70%General and administrative expenses6.3Lease expense0.6Depreciation expense3.6Total operating expense23.2Operating profits10.90%Less: Interest expense1.5Net profits before taxes9.40%Less: Taxes (rate 40%)3.8Net profits after taxes5.60%

Common size Income StatementCreek Enterprises for the year ended December 31, 2014Sales revenue $30,000,000Less: Cost of goods sold21,000,000Gross profits$9,000,000Less: Operating expensesSelling expense$3,000,000General and administrative expenses1,800,000Lease expense200,000Depreciation expense1,000,000Total operating expense6,000,000Operating profits$3,000,000Less: Interest expense1,000,000Net profits before taxes$2,000,000Less: Taxes (rate 40%)800,000Net profits after taxes$1,200,000

a) Using the firm's 2014 income statement presented below, develop the 2014 common size income statement.

20142013Profit reduced by 4%, selling expenses need to be proportionately reduced by 4% as wellSales revenue $30,000,000100.00%100.00%Selling expenses need to be controlled. (only 2.7% dropped not 4%)Less: Cost of goods sold21,000,00070.00%65.90%Gross profits$9,000,00030.00%34.10%Less: Operating expensesSelling expense$3,000,00010.00%12.70%Loans to be serviced in 2014This is a trickier thing to analyse, need to do it in totality. Weak on its own. Teacher say Just STATE this change, because it is too superficial to analyse financial expense alone. General and administrative expenses1,800,0006.00%6.30%interest expense shld be proportionate??5250002013 expensesfor 2014 expenses to be 1.5% the value needs to be Only elaborate further if you have more details from the company. Lease expense200,0000.67%60.00%1,000,0002014 expenses450000A basic answer could beDepreciation expense1,000,0003.33%3.60%Rose to 3.3%, could it be that they had more loans borrowed this year?Total operating expense6,000,00020.00%23.20%COGS Operating profits$3,000,00010.00%10.90%Sales dropped by 5m, but COGs rose by 4.1%. Cogs spending need to be controlled. Less: Interest expense1,000,0003.33%1.50%Cogs should be proportionate or lower than previous year to be in a better financial position. Net profits before taxes$2,000,0006.67%9.40%Less: Taxes (rate 40%)800,0002.67%3.80%Net profits after taxes$1,200,0004.00%5.60%

a) Compare and comment on the common size statements for the two years. Which areas require further analysis and investigation?

Sales revenue 100.00%100.00%Less: Cost of goods sold70.00%65.90%Gross profits30.00%34.10%Less: Operating expensesSelling expense10.00%12.70%General and administrative expenses6.00%6.30%Lease expense0.67%60.00%Depreciation expense3.33%3.60%Total operating expense20.00%23.20%Operating profits10.00%10.90%Less: Interest expense3.33%150.00%Net profits before taxes6.67%9.40%Less: Taxes (rate 40%)2.67%3.80%Net profits after taxes4.00%5.60%

Sheet3Question 3

a) Prepare a vertical analysis for Risk Corporation's balance sheet to determine the component percentages of its assets, liabilities, and stockholders' equity.

Risk CorporationStatement of financial position as at December 31, 2010 ASSETS Total current assets $80,00019.05%Long-term investments 40,0009.52%Property, plant, and equipment, net 300,00071.43%Total assets 420,000100.00%

LIABILITIESTotal current liabilities$65,00015.48%Long-term debt120,00028.57%Total liabilities185,00044.05%

SHAREHOLDERS' EQUITYTotal shareholders' equity$235,00055.95%Total liabilities and shareholders' equity$420,000100.00%

b) What item forms the greatest component of the total assets and the total liabilities?

Assets: Property and PlantLiabilities: Long term Liabilitiesc) Are the assets of the company mainly financed by the owners or outsiders? Owners, majoirity of the assets are plant assets