USING COMMON SIZE STATEMENTS
Greg's Graphics Company owns and operates a small chain of sportswear stores located near colleges and universities. Greg's Graphics has experienced significant growth in recent years. The following data are available for Greg's Graphics:
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Greg's Graphics Company Comparative Statements of Income
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|
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Year Ended December 31,
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(In thousands)
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2009
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2008
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2007
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Sales
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$54,922
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$42,893
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$35,526
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Cost of goods sold
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32,936
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25,682
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21,721
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Gross margin
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$21,986
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$17,211
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$13,805
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Other income, net
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397
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439
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421
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$22,383
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$17,650
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$14,226
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Costs and expenses:
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|
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Selling and administrative
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$17,857
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$14,665
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$12,754
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Interest
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1,356
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863
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622
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$19,213
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$15,528
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$13,376
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Income before income taxes
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$ 3,170
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$ 2,122
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$ 850
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Provision for income taxes
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885
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746
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623
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Net income
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$ 2,285
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$ 1,376
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$ 227
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Greg's Graphics Company Comparative Balance Sheets (In thousands)
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ASSETS
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December 31,
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2009
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2008
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2007
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Current assets: Cash
Accounts receivable Inventories
Total current assets
Property, plant, and equipment (net) Other assets
Total assets
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$ 372
4,798
5,673
$10,843 4,912
592
$16,347
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$ 301
3,546
4,521
$ 8,368
3,541
592
$12,501
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$ 245
3,369
3,389
$ 7,003
2,937
552
$10,492
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LIABILITIES AND
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STOCKHOLDERS'
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EQUITY
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Current liabilities:
Short-term notes payable Accounts payable
Total current liabilities Long-term debt
Total liabilities Paid-in capital Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
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$ 4,314
1,256
$ 5,570
3,241
$ 8,811
$ 4,367
3,169
$ 7,536
$16,347
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$ 1,731
987
$ 2,718
3,234
$ 5,952
$ 4,598
1,951
$ 6,549
$12,501
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$ 463
783
$ 1,246
3,266
$ 4,512
$ 4,725
1,255
$ 5,980
$10,492
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Required:
1. Calculate how much Greg's Graphics' sales, net income, and assets have grown dur- ing these three years.
2. Explain how Greg's Graphics has financed the increase in assets.
3. Discuss whether Greg's Graphics' liquidity is adequate.
4. Explain why interest expense is growing.
5. If Greg's Graphics' sales grow by 25 percent in 2010, what would you expect net income to be?
6. If Greg's Graphics' assets must grow by 25 percent to support the 25 percent sales increase and if 50 percent of net income is paid in dividends, how much capital must Greg's Graphics raise?