Assume you are doing a financial analysis for Kroger Inc. Here is one of the inc
ID: 2617521 • Letter: A
Question
Assume you are doing a financial analysis for Kroger Inc. Here is one of the income statements that you analyze (all figures in $ Millions):
Year
2006
2005
2004
Total Sales
60,553
56,434
53,791
Cost of goods sold
45,565
42,140
39,637
Selling, general & admin expenses
11,688
12,191
11,575
Depreciation
1265
1256
1209
Operating Income
2035
847
1370
Other Income
0
0
0
EBIT
2035
847
1370
Interest expense
510
557
604
Earnings before tax
1525
290
766
Taxes (35%)
534
102
268
Net Income
991
189
498
Based on your analysis of the income statements. What can be said about the progress. Which areas are improving? Sales increased from 2004 to 2005 yet net profit decreased . Why do you think they decreased net income in 2005 with higher sales. sales? 2006 seems to be better. What did the fix?
Year
2006
2005
2004
Total Sales
60,553
56,434
53,791
Cost of goods sold
45,565
42,140
39,637
Selling, general & admin expenses
11,688
12,191
11,575
Depreciation
1265
1256
1209
Operating Income
2035
847
1370
Other Income
0
0
0
EBIT
2035
847
1370
Interest expense
510
557
604
Earnings before tax
1525
290
766
Taxes (35%)
534
102
268
Net Income
991
189
498
Explanation / Answer
They spent higher amount on Selling, General and Administrative Expenses as % of sales in 2005 which lowered net income.
Sales increased in 2006 because of higher spend on advertisement or discounts that is SG&A in previous periods-2005,2004
Perhaps they decreased the price of the product which could have increased demand that can also contribute to icnreasing sales.
Interest expenses also decreased as % of sales.
2006 2005 2004 Total Sales 100.00% 100.00% 100.00% Cost of goods sold 75.25% 74.67% 73.69% Selling, general & admin expenses 19.30% 21.60% 21.52% Depreciation 2.09% 2.23% 2.25% Operating Income 3.36% 1.50% 2.55% Other Income 0.00% 0.00% 0.00% EBIT 3.36% 1.50% 2.55% Interest expense 0.84% 0.99% 1.12% Earnings before tax 2.52% 0.51% 1.42% Taxes (35%) 0.88% 0.18% 0.50% Net Income 1.64% 0.33% 0.93%Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.