Common-size statements, analysis of profitability and financial position, comparison with the industry, and using ratios to evaluate a company.
Data:
Income statement compared with industry average:
- McConnell Industry Average
- Net sales $778,000 100%
- Cost of goods sold 522,816 65.8
- Gross profit 255,184 43.2
- Operating expenses 161,046 19.7
- Operating income 94,138 14.5
- Other expenses 4,668 0.4
- Net income $89,470 14.1%
1.) Prepare a common-size income statement and balance sheet for McConnell. The first column of each statement should present McConnell's common-size statement, and the second column, the industry averages.
2.) For the profitability analysis, compute McConnell's (a) gross profit percentage and (b) rate of return on net sales. Compare these figures with the industry averages. Is McConnell's profit performance better or worse than the industry average?
3.) For the analysis of financial position, compute McConnell's (a) current ratio and (b) debt to equity ratio. Compare these ratios with the industry averages. Is McConnell's financial position better or worse than the industry averages?