A1 X V fx AP12-1B (Common-size analysis and differences in profitability and leverage) B C D E F G H AP12-1B Common-size analysis and differences in profitability and leverage Comparative financial statement data for Cool Brewery Ltd. and Northern Beer Ltd. , two competitors, follow (amounts in thousands) : Cool Brewery Ltd. Northern Beer Ltd. 2024 2023 2024 2023 Net sales 206, 700 $ 40, 500 Cost of goods sold 100, 500 15, 300 Operating expenses 85, 400 17, 190 Interest expense 7, 800 370 Income tax expense 4, 700 1 , 130 Cash 12, 000 10, 000 4, 500 $ 2, 500 13 Other current assets 86, 000 80, 500 8, 200 7, 400 Long-term assets (net) 210, 000 209, 600 29, 100 30, 700 Current liabilities 71, 900 60, 800 3, 900 1, 000 16 Long-term liabilities 103, 900 17, 500 8, 000 7, 400 Share capital 51, 200 48, 500 17, 800 16, 700 18 Retained earnings 81, 000 73, 300 12, 100 12, 500 19 20 1 Required 22 a) Prepare a common-size analysis for 2024 for Cool Brewery Ltd. and Northern Beer Ltd. 23 Cool Brewery Ltd. Northern Beer Ltd. 25 Amount $ % Amount $ 26 Net sales 27 Cost of goods sold 28 Gross margin 29 Operating expenses 30 Interest expense Income tax expense 32 Net earnings 33 34 35 b) Calculate the return on assets and the return on shareholders' equity for both companies. 36 37 Cool Brewery Ltd. Northern Beer Ltd. 38 2024 2023 2023 39 Total assets 40 Total shareholders' equity 41 42 Average - total assets 43 Average - total sh equity 44 *ROA = Net earnings 45 Return on assets (ROA) = Avg total assets 46 47 Return on equity (ROE) = *ROE = Net earnings 48 Avg sh equityc ) Comment on the relative profitability of these companies. d) Based on your calculations above, identify two main reasons for the difference in their profitability. e) Calculate the debt to equity ratio for both companies at the end of 2024. Cool Brewery Ltd. Northern Beer Ltd. 2024 2024 Long-term liabilities Less: cash Net debt Debt-to-equity (D/E) = *D/E = Net debt Total sh equity f) Calculate the net debt as a percentage of total capitalization for both companies. Cool Brewery Ltd. Northern Beer Ltd. 2024 2024 Long-term liabilities Less: cash Net debt Add: equity Total capitalization Net debt as a % of * = Net debt total capitalization = Total capitaliz'n g) Compare the use of leverage by these companies based on the ratios calculated in parts (e) and (f)