Question: Income Statements and Risk (Medium)
The statements below are for two firms in the same line of business (in millions of dollars).
a. Analyze the risk drivers in these income statements. Which firm looks more risky for stockholders? Why?
b. On the basis of the relationships in these income statements, develop proforma income statements under the following scenarios:
(1) Sales drop to $532 million for both firms.
(2) Sales increase to $2,140 million for both firms. What does this analysis tell you?