Response to the following problem:
Prince Foods Company disclosed the following comparative income statement information:
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For the Year Ended
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Dec. 31, 2007
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Dec. 31,2006
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Sales
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$600,000
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$500,000
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Cost of goods sold
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252,000
|
190,000
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Gross profit
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$348,000
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$310,000
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Operating expenses
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240,000
|
200,000
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|
Income from operations
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$108,000
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$110,000
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The asset turnover for both 2006 and 2007 was 0.80.
a. Determine the rate earned on total assets for 2006 and 2007, using the DuPont formula.
b. Prepare common-size income statements for 2006 and 2007.
c. Analyze the change in the rate earned on total assets between 2006 and 2007 by conducting a margin analysis on common-size statements.