E6-42. (Learning Objective 3: Evaluating a company’s profitability) L Mart, Inc., declared bankruptcy. Let’s see why. L Mart reported these figures:

Requirement 1. Evaluate the trend of L Mart’s results of operations during 20X4 through 20X6. Consider the trends of sales, gross profit, and net income. Track the gross profit percentage (to three decimal places) and the rate of inventory turnover (to one decimal place) in each year. Also discuss the role that selling expenses must have played in L Mart’s difficulties.

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A1 L Mart, Inc. 12 Months Ended Dec. 31 1 Statement of Income 2 (In millions of $) 20X6 20X5 20X4 20X3 3 Sales S 36.2 $ 35.8 $ 34.3 4 Cost of sales 28.6 27.7 26.8 5 Selling expenses 7.8 6.9 6.0 6 Other expenses 0.2 1.0 0.8 7 Net income (net loss) $ (0.4) $ 0.2 $ 0.7 8 Additional data: 9 Ending inventory $ 8.9 $ 7.3 $ 7.8 $ 6.4 10