CHAPTER 3 PROBLEMS UNDERSTANDING FINANCIAL STATEMENTS AND CASH FLOW 3-1. UNDERSTANDING THE INCIOME STATEMENT Net income500.000 Cost of goods sold100.000 G&A55.000 Depreciation expense30.000 Interest expense45.000 Taxes50.000 3-2 WORKING WITH INCOME STATEMENTS DATA Net income $280.000 Shares outstanding 80.000 Dividends $ 40.000 3-3. WORKING WITH INCOME STATEMENT DATA Sales $525.000 Cost of goods sold 200000 General and administrative expenses 62000 Depreciation expenses 8.000 Interest expense 12.000 Income taxes 97.200 3-4. WORKING WITH BALANCE SHEET DATA Cash 50.000 Account receivables 42.700 Accounts payable 23.000 Short-term notes payable 10.500 Inventories 40.000 Gross fixed assets 1.280.000 Other current assets 5.000 Accumulated depreciation -312.000 Long-term debt 200.000 Common stock 490.000 Other assets 15.000 Retained earnings ? MINI CASE a. Comparison of profit margins from 2017 to 2018 Crosby Co. 2017201820172018 Sales$28.729$29.795100,0%100,0% Cost of goods sold15.93416.23055,5%54,5% Gross profits$12.795$13.56544,5%45,5% Selling, general, and administrative expenses6.3336.46522,0%21,7% Depreciation and amortization2482510,9%0,8% Other operating expenses2962441,0%0,8% Total operating expenses6.8776.96023,9%23,4% Operating income$5.918$6.60520,6%22,2% Interest expense1.2531.1904,4%4,0% Nonoperating income (expenses)-217-112-0,8%-0,4% Earnings before tax$4.448$5.30315,5%17,8% Income taxes1.5261.6125,3%5,4% Net income (loss)$2.922$3.69110,2%12,4% Prairie, Inc. 2017201820172018 Sales$42.278$45.041100,0%100,0% Cost of goods sold33.41535.59179,0%79,0% Gross profits$8.863$9.45021,0%21,0% Selling, general, and administrative expenses1392830,3%0,6% Operating income$8.724$9.16720,6%20,4% Interest expense3692350,9%0,5% Nonoperating income (expenses)9056882,1%1,5% Earnings before tax$9.260$9.62021,9%21,4% Income taxes3.0872.9847,3%6,6% Net income (loss)$6.173$6.63614,6%14,7% b. Comparison of profit margins between Crosby Co. and Prairie, Inc. c. Comparison of balance sheets and asset-to-sales relationships 3A-2 Free Cash Flow Analysis