F#8

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

Franklin

Department Stores. The first column of each statement should present

Franklin

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.

Franklin Department Stores, Inc.
Common-Size Income Statement Compared to Industry Average
For the Year Ended December 31
	Franklin (%)		Industry Average
Sales revenues	100	%	100.0%
Less: Cost of goods sold		%	65.5%
Gross profit		%	34.5%
Less: Operating expenses		%	19.7%
Operating income		%	14.8%
Less: Interest expense		%	0.1%
Income before income taxes		%	14.7%
Less: Income tax expense		%	0.6%
Net income		%	14.1%

Now prepare a common-size balance sheet for

Franklin.

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

Franklin Department Stores, Inc.
Common-Size Balance Sheet Compared with Industry Average
As of December 31
	Franklin (%)		Industry Average
Assets
Current assets		%	70.8%
Fixed assets, net		%	23.9%
Intangible assets, net		%	0.7%
Other assets		%	4.6%
Total assets		%	100.0%
Liabilities
Current liabilities		%	48.2%
Long-term liabilities		%	16.8%
Total liabilities		%	65.0%
Stockholders' equity
Total common stockholders' equity		%	35.0%
Total liabilities and equity		%	100.0%

Requirement 2. For the profitability analysis, compute

Franklin

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

Franklin

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

Franklin'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,

Franklin's

profit performance is

better

worse

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

Franklin

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

Franklin

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

Franklin'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,

Franklin's

financial position is

better

worse

than average for the industry.

Data table

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	A	B	C
1	Franklin Department Stores, Inc.
2	Income Statement Compared with Industry Average
3	For the Year Ended December 31
4		(amounts in thousands)
5		Franklin	Industry Average
6	Sales revenues	$779,000	100.0%
7	Less: Cost of goods sold	527,383	65.5%
8	Gross profit	$251,617	34.5%
9	Less: Operating expenses	161,253	19.7%
10	Operating income	$90,364	14.8%
11	Less: Interest expense	1,558	0.1%
12	Income before income taxes	$88,806	14.7%
13	Less: Income tax expense	5,453	0.6%
14	Net income	$83,353	14.1%

Data table

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	A	B	C
1	Franklin Department Stores, Inc.
2	Balance Sheet Compared with Industry Average
3	As of December 31
4	(amounts in thousands)
5		Franklin	Industry Average
6	Assets
7	Current assets	$332,220	70.8%
8	Fixed assets, net	128,380	23.9%
9	Intangible assets, net	5,880	0.7%
10	Other assets	23,520	4.6%
11	Total assets	$490,000	100.0%
12	Liabilities
13	Current liabilities	$227,360	48.2%
14	Long-term liabilities	110,740	16.8%
15	Total liabilities	$338,100	65.0%
16	Stockholders' equity
17	Total common stockholders' equity	$151,900	35.0%
18	Total liabilities and equity	$490,000	100.0%