Common-size statement analysis A common-size income statement for Creek Enterpri

Question

Common-size statement analysis A common-size income statement for Creek Enterprises’
2014 operations follows. Using the firm’s 2015 income statement presented in
Problem 3–18, develop the 2015 common-size income statement and compare it with
the 2014 statement. Which areas require further analysis and investigation?

CREEK ENTERPRISES COMMON-SIZE BALANCE SHEET

FOR YEAR ENDING DECEMBER 31, 2014

SALES REVENUE ($35,000,000) 100%

LESS; COGS 65.9%

GROSS PROFIT 34.1%

LESS: OPERATING EXPENSE

   SELLING EXPENSE 12.7%

   GENERAL & ADMIN EXPENSE 6.3

   LEASE EXPENSE 0.6

   DEPRECIATION EXPENSE 3.6

   TOTAL OPERATING EXPENSES 23.2

OPERATION PROFITS 109%

LESS: INTEREST EXPENSE 1.5

   NET PROFIT BEFORE TAXES 9.4 %

LESS: TAXES (RATE = 40 %) 3.8

   NET PROFIT AFTER TAXES 5.6%

LESS: PREFERRED STOCK DIVIDENDS 0.1

EARNINGS AVAILABLE FOR COMMON   

STOCKOLDERS 5.5%

Explanation / Answer

Income Statement Sales Revenue 100% 3500000 Less: COGS 65.90% 2306500 Gross Profit 34.10% 1193500 Less: Operating Expenses Selling 12.70% 444500 General & Admin 6.30% 220500 Lease 0.60% 21000 Depreciation 3.60% 126000 Total Operating Expenses 23.20% 812000 Operation Profits 11% 381500 Less: Interest 1.50% 52500 Net profit before taxes 9.40% 329000 Less: Taxes 3.80% 133000 Net Profit after taxes 5.60% 196000

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