12-44. Compare Income Statements and Balance Sheets of Competitors Following are selected income statement and balance sheet data from two European grocery chain companies: Tesco PLC (UK) and Ahold (the Netherlands). L01, 2 Home Income Statements For Fiscal Year Ended Sales....... Cost of goods sold. Gross profit... Total expenses Net income Tesco February 24, 2019 ( millions) Carrefour Group December 31, 2018 ( millions) 63,911 77,917 59,767 60,850 4,144 17,067 2,824 17,411 1,320 (344) Balance Sheet Current assets Long-term assets Total assets Current liabilities. Long-term liabilities. Tesco February 24, 2019 ( millions) 12,668 36,379 Carrefour Group December 31, 2018 ( millions) 18,670 28,708 49,047 47,378 20,680 23,162 13,533 12,930 Total liabilities.... 34,213 36,092 Stockholders' equity. 14,834 11,286 Total liabilities and equity. 49,047 47,378 Required a. Prepare a common-size income statement. To do this, express each income statement amount as a percent of sales. Comment on any differences observed between the two companies. b. Prepare a common-size balance sheet. To do this, express each balance sheet amount as a percent of total assets. Comment on any differences observed between the two companies. Which company has chosen to structure itself with a higher proportion of equity (and a lower proportion of debt)? How does this capital structure decision affect our assessment of the relative riskiness of these two companies? MB Management Applicat L01, 4 MA2-45. Explain the Company Operating Cycle and Management Strategy Consider the operating cycle as depicted in Exhibit 2.4 to answer the following questions. a. Why might a company want to reduce its cash conversion cycle? (Hint: Consider the financial statement implications of reducing the cash conversion cycle.) b. How might a company reduce its cash conversion cycle? Examine and discuss the potential impacts on customers and suppliers of taking the actions identified in part b. MA2-46. Ethics and Governance: Understand Revenue Recognition and Expense Recording Revenue should be recognized when the performance obligation is satisfied and expense when incurred. Given some lack of specificity in these terms, companies have some latitude when applying GAAP to determine the timing and amount of revenues and expenses. A few companies use this latitude to manage reported earnings. Some have argued that it is not necessarily bad for companies to manage earnings in that, by doing so, management (1) can better provide investors and creditors with reported earnings that are closer to "core" earnings (i.e., management purges earnings of components deemed irrelevant LO2