Using the income statement on page 47 http://investors.cvshealth.com/~/media/Fil
ID: 341722 • Letter: U
Question
Using the income statement on page 47 http://investors.cvshealth.com/~/media/Files/C/CVS-IR-v3/reports/annual-report-2016.pdf
1) Perform common-size analysis in relation to sales for the following items in the income statement for the current and previous years:
Sales
Cost of Goods Sold
Gross Profit
Operating Expense
R & D Expense
Income Tax Expense
Income from Continuing Operations
Net Income
Current Year
100.0%
___________
___________
___________
___________
___________
___________
___________
Previous Year
100.0%
__________
__________
__________
__________
__________
__________
__________
2) Cost Control - Did the effect of cost of goods sold change in the current year in comparison to the previous year? What are possible explanations for changes, if any, that may have occurred?
3) Cost Control - Did the effect of operating expenses change in the current year in comparison to the previous year? What are possible explanations for changes, if any, that may have occurred?
4) How did the cost of debt (interest expense) change compare to the previous year? What are possible explanations for changes, if any?
Sales
Cost of Goods Sold
Gross Profit
Operating Expense
R & D Expense
Income Tax Expense
Income from Continuing Operations
Net Income
Current Year
100.0%
___________
___________
___________
___________
___________
___________
___________
Previous Year
100.0%
__________
__________
__________
__________
__________
__________
__________
Explanation / Answer
Q1
Particulars 2016 2015
1. Sales 100 100
2.Cost of goods sold 83.75% 82.69%
3.Gross Profit 16.25% 17.31%
4. operating expenses 10.43 % 11.14%
5. R and D expenses 0% 0%
6. Income tax expenses 1.86% 2.2%
7. Income from continuing
oprations 3% 3.41%
8. Net Income 3% 3.41%
Q2
Cost of goods sold is decreased and possible reason for that are may be as follows
1. economise of scale means as sales increases variable cost increase in same praportion but fixed cost is same as before and that will give you addtional contribution.
Q3
1. As operating expenses are also decreased from 11.14% to 10.43% and possible reason for that is same as mention in Q2
Q4
1. As Interest expenses are increased from 838 to 1058 and possible reason for that is though longterm debt is decrease by $1807 but short term debt is increase $ 1874.
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