Exercise 2

Following is the key financial data:

Income Statement, Dreamscape, Inc.

For the Year Ended December 31, 2013

Required:

Evaluate the company's performance against industry average ratios and against last year's results. Show all computations.

Dreamscape, Inc. For the Year Ended December 31, 2012 74.5% 25.5 8.0 5.1 2.4 15.5 10.0 1.4 Industry Average For the Year Ended December 31, 2013 70.0% 30.0 7.0 Ratio (% of Sales) Cost of goods sold Gross profits Selling expense Gen. & admin. expense Depreciation expense Total operating expense Operating profits Interest expense Net profits before taxes Taxes Net profits after taxes 4.9 2.0 13.9 16.1 1.0 15.1 Oo ni 6.0 9.1 5.2 $1,000,000 750,000 $ 250,000 $ Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling Expense Gen. & admin, expense Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes Net profits after taxes $ $ $ $ $ $ 70,000 48,000 20,000 138,000 112,000 20,000 92,000 36,800 55,200