Using Common Size Statements Groff Graphics Company owns and operates a small ch
ID: 2529407 • Letter: U
Question
Using Common Size Statements
Groff Graphics Company owns and operates a small chain of sportswear stores located near colleges and universities. Groff has experienced significant growth in recent years. The following data are available for Groff:
Required:
1. Calculate how much Groff's sales, net income, and assets have grown during these 3 years. Round your answers to the nearest whole percent.
2. Explain how Groff has financed the increase in assets.
Groff financed its asset growth through an increase in retained earnings and an increase in current liabilities.
3. Conceptual Connection: Is Groff's liquidity is adequate?
Yes
4. Conceptual Connection: Why is interest expense growing?
Because short-term notes payable is increasing.
5. If Groff's sales grow by 25% in 2020, what would you expect net income to be? Round your answer to the nearest dollar. Use your answer in the following calculations.
$
6. If Groff's assets must grow by 25% to support the 25% sales increase and if 50% of net income is paid in dividends, how much capital must Groff raise in 2020? Round your answer to the nearest cent.
$
Explanation / Answer
Common Size Income Statement for Groff Graphics Company
Particulars
2017
2018
2019
%2017
%2018
%2019
Sales
$35,526
$42,893
$54,922
100
120.74
154.59
Cost of goods sold
21,721
25,682
32,936
100
118.24
151.63
Gross margin
$13,805
$17,211
$21,986
100
124.67
159.26
Other income, net
421
439
397
100
104.27
94.3
$14,226
$17,650
$22,383
100
124.1
157.34
Costs and Expenses:
Selling and administrative
$12,754
$14,665
$17,857
100
114.98
140.01
Interest
622
863
1,356
100
138.75
218
Total costs and expense
$13,376
$15,528
$19,213
100
116.1
143.64
Income before income taxes
$ 850
$ 2,122
$ 3,170
100
249.65
372.94
Provision for income taxes
623
746
885
100
119.74
142.05
Net income
$ 227
$ 1,376
$ 2,285
100
606.17
1006.61
Common-size financial Statements for Groff Graphics Company
Particulars
2017
2018
2019
%2017
%2018
%2019
ASSETS
Current assets:
Cash
$245
$301
$372
100
122.86
151.84
Accounts receivable
3,369
3,546
4,798
100
105.25
142.42
Inventories
3,389
4,521
5,673
100
133.40
167.4
Total current assets
$7,003
$8,368
$10,843
100
119.49
154.83
Property, plant and equipment (net)
2,937
3,541
4,912
100
120.56
167.24
Other assets
552
592
592
100
107.25
107.25
Total assets
$10,492
$12,501
$16,347
100
119.15
155.80
Ans1.
Ans 2. Groff financed its asset growth through an increase in retained earnings and an increase in current liabilities. As his retained earnings increased to 252.51% and current liabilities increased 447.03% during the three years.
Ans3. To check Groffs liquidity , we can calculate current ratio(CR), which is Current Assets/Current Liabilities
So here During all 3 years
2017 CR= 7003/1246= 5.6
2018 CR= 8368/$2,718= 3.08
2019 CR= $10,843/5570= 1.95, yes liquidity is adequate.
Ans 4. Because short-term notes payable is increasing.
Ans5. Groff Sales grow by 25% in 2020, so as sales is 54922 so in 2020 it is expected to be $68652.50 so net income would be $3633.15.
Ans6. the total assest after 25% increase will be 20433.75, and net income will be decreased by $1142.5, so now the capital need to be raised in 2020 is $5229.25 to match the total assets side.
Particulars
2017
2018
2019
%2017
%2018
%2019
Sales
$35,526
$42,893
$54,922
100
120.74
154.59
Cost of goods sold
21,721
25,682
32,936
100
118.24
151.63
Gross margin
$13,805
$17,211
$21,986
100
124.67
159.26
Other income, net
421
439
397
100
104.27
94.3
$14,226
$17,650
$22,383
100
124.1
157.34
Costs and Expenses:
Selling and administrative
$12,754
$14,665
$17,857
100
114.98
140.01
Interest
622
863
1,356
100
138.75
218
Total costs and expense
$13,376
$15,528
$19,213
100
116.1
143.64
Income before income taxes
$ 850
$ 2,122
$ 3,170
100
249.65
372.94
Provision for income taxes
623
746
885
100
119.74
142.05
Net income
$ 227
$ 1,376
$ 2,285
100
606.17
1006.61
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