14#2

Department Stores' chief executive officer (CEO) has asked you to compare the company's profit performance and financial position with the average for the industry. The CEO has given you the company's income statement and balance sheet, as well as the industry average data for retailers.

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(Click the icon to view the balance sheet.)Read the requirements

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Requirement 1. Prepare a common-size income statement and balance sheet for

Thomas

Department Stores. The first column of each statement should present

Thomas

Department Stores' common-size statement, while the second column should present the industry averages. (Round your answers to two decimal places, X.XX.)

Start with preparing a common-size income statement.

Thomas Department Stores, Inc.
Common-Size Income Statement Compared to Industry Average
For the Year Ended December 31
	Thomas (%)		Industry Average
Sales revenues		%	100.0%
Less: Cost of goods sold		%	65.8%
Gross profit		%	34.2%
Less: Operating expenses		%	19.9%
Operating income		%	14.3%
Less: Interest expense		%	0.4%
Income before income taxes		%	13.9%
Less: Income tax expense		%	0.5%
Net income		%	13.4%

Now prepare a common-size balance sheet for

Thomas.

(Round your answers to two decimal places, X.XX.)

Thomas Department Stores, Inc.
Common-Size Balance Sheet Compared with Industry Average
As of December 31
	Thomas (%)		Industry Average
Assets
Current assets		%	70.8%
Fixed assets, net		%	24.0%
Intangible assets, net		%	0.7%
Other assets		%	4.5%
Total assets		%	100.0%
Liabilities
Current liabilities		%	48.1%
Long-term liabilities		%	16.8%
Total liabilities		%	64.9%
Stockholders' equity
Total common stockholders' equity		%	35.1%
Total liabilities and equity		%	100.0%

Requirement 2. For the profitability analysis, compute

Thomas

Department Stores' (a) ratio of gross profit to sales, (b) ratio of operating income to sales, and (c) ratio of net income to sales. Compare these figures with the industry averages. Is

Thomas

Department Stores' profit performance better or worse than the industry average?

Thomas's

common-size income statement shows that its ratios of gross profit, operating income, and net income to sales are

better

worse

than the industry averages. Overall,

Thomas's

profit performance is

better

worse

than average for the industry.Requirement 3. For the analysis of financial position, compute

Thomas

Department Stores' (a) ratio of current assets to total assets and (b) ratio of stockholders' equity to total assets. Compare these ratios with the industry averages. Is

Thomas

Department Stores' financial position better or worse than the industry averages?

Thomas's

common-size balance sheet shows that its ratio of current assets to total assets and its ratio of stockholders' equity to total assets are

better

worse

than the industry averages. Overall,

Thomas's

financial position is

better

worse

than average for the industry.

Data table

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	A	B	C
1	Thomas Department Stores, Inc.
2	Income Statement Compared with Industry Average
3	For the Year Ended December 31
4		(amounts in thousands)
5		Thomas	Industry Average
6	Sales revenues	$784,000	100.0%
7	Less: Cost of goods sold	527,632	65.8%
8	Gross profit	$256,368	34.2%
9	Less: Operating expenses	163,856	19.9%
10	Operating income	$92,512	14.3%
11	Less: Interest expense	784	0.4%
12	Income before income taxes	$91,728	13.9%
13	Less: Income tax expense	7,056	0.5%
14	Net income	$84,672	13.4%

Data table

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	A	B	C
1	Thomas Department Stores, Inc.
2	Balance Sheet Compared with Industry Average
3	As of December 31
4	(amounts in thousands)
5		Thomas	Industry Average
6	Assets
7	Current assets	$324,000	70.8%
8	Fixed assets, net	122,880	24.0%
9	Intangible assets, net	9,120	0.7%
10	Other assets	24,000	4.5%
11	Total assets	$480,000	100.0%
12	Liabilities
13	Current liabilities	$224,640	48.1%
14	Long-term liabilities	105,600	16.8%
15	Total liabilities	$330,240	64.9%
16	Stockholders' equity
17	Total common stockholders' equity	$149,760	35.1%
18	Total liabilities and equity	$480,000	100.0%