Income Statement and Profitability Analysis
You were able to record the key briefing highlights of the meeting you just attended about Company DR, a rising star in the ever-competitive high-end restaurant industry. The presenter was the CEO of Company DR and he disclosed his company's most recent annual sales figure. Company DR has 10 restaurant locations across the Philippines. In as much as you wanted a printout of the income statement, none was made available to participants. But you believe that the information in the recording would be sufficient for you to piece together Company DR's Income Statement for 2020, along with the forecast for 2021 and 2022. You listened to the recording again and wrote down the key information from the presentation of the CEO you deemed relevant and arrived at the list that follows: 1) Company wide net sales in 2020 was Php155 million. We expect sales to decline by 15% in 2021, then rise by 20% the following year. 2) Our gross profit margin was only 40% in 2020 mainly due to higher raw material prices. Our heightened efforts to secure alternative suppliers gives us confidence that our costs could be brought down to only 45% of sales in 2021. Our target by 2022 is a gross profit margin of 65%. 2) Our gross profit margin was only 40% in 2020 mainly due to higher raw material prices. Our heightened efforts to secure alternative suppliers gives us confidence that our costs could be brought down to only 45% of sales in 2021. Our target by 2022 is a gross profit margin of 65%. 3) Our total operating cost in 2020 was Php20 million, of which Php8 million was for depreciation expense and the rest was cash-based expenses. By 2021, we expect cash-based operating expenses to rise to around 8.5% of sales; then 10% of sales by 2022. Depreciation expense for 2021 and 2022 would likely be unchanged. 4) Our total interest expense in 2020 amounted to Php12 million. As we do not see the need to borrow additonal capital from the markets any time soon, we expect that we can maintain our current debt level for the next 5 years. 5) Our corporate tax rate is currently 30%. Given this, you have set out to prepare the Income Statement for Company DR for the year ended 2020, along with the forecast for 2021 and 2022. Afterwhich you need to complete the horizontal and vertical analysis of Company DR's Income Statement. Finally, given all these information, you will write a brief recommendation to your immediate supervisor about Company DR's sales performance and forecast guidance--realistic, overly-optimistic, unachievable. You were able to record the key briefing highlights of the meeting you just attended about Company DR, a rising star in the ever-competitive high-end restaurant industry. The presenter was the CEO of Company DR and he disclosed his company's most recent annual sales figure. Company DR has 10 restaurant locations across the Philippines. In as much as you wanted a printout of the income statement, none was made available to participants. But you believe that the information in the recording would be sufficient for you to piece together Company DR's Income Statement for 2020, along with the forecast for 2021 and 2022. You listened to the recording again and wrote down the key information from the presentation of the CEO you deemed relevant and arrived at the list that follows: 1) Company wide net sales in 2020 was Php155 million. We expect sales to decline by 15% in 2021, then rise by 20% the following year. 2) Our gross profit margin was only 40% in 2020 mainly due to higher raw material prices. Our heightened efforts to secure alternative suppliers gives us confidence that our costs could be brought down to only 45% of sales in 2021. Our target by 2022 is a gross profit margin of 65%. 2) Our gross profit margin was only 40% in 2020 mainly due to higher raw material prices. Our heightened efforts to secure alternative suppliers gives us confidence that our costs could be brought down to only 45% of sales in 2021. Our target by 2022 is a gross profit margin of 65%. 3) Our total operating cost in 2020 was Php20 million, of which Php8 million was for depreciation expense and the rest was cash-based expenses. By 2021, we expect cash-based operating expenses to rise to around 8.5% of sales; then 10% of sales by 2022. Depreciation expense for 2021 and 2022 would likely be unchanged. 4) Our total interest expense in 2020 amounted to Php12 million. As we do not see the need to borrow additonal capital from the markets any time soon, we expect that we can maintain our current debt level for the next 5 years. 5) Our corporate tax rate is currently 30%. Given this, you have set out to prepare the Income Statement for Company DR for the year ended 2020, along with the forecast for 2021 and 2022. Afterwhich you need to complete the horizontal and vertical analysis of Company DR's Income Statement. Finally, given all these information, you will write a brief recommendation to your immediate supervisor about Company DR's sales performance and forecast guidance--realistic, overly-optimistic, unachievable
