McConnell 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. (Click the icon to view the income statement.) (Click the icon to view the balance sheet.) Read the requirements. Requirement 1. Prepare a common-size income statement and balance sheet for McConnell Department Stores. The first column of each statement should present McConnell 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. McConnell Department Stores, Inc. Common-Size Income Statement Compared to Industry Average For the Year Ended December 31 Industry McConnell (%) Average Sales revenues % 100.0% 65.7% % % Less: Cost of goods sold Gross profit Less: Operating expenses Operating income 34.3% 19.9% % % 14.4% 0.3% Less: Interest expense % Income before income taxes % 14.1% 0.2% Less: Income tax expense % 13.9% Net income % Now prepare a common-size balance sheet for McConnell. (Round your answers to two decimal places, X.XX.) McConnell Department Stores, Inc. Common-Size Balance Sheet Compared with Industry Average As of December 31 Industry McConnell (%) Average Assets % 70.8% Current assets Fixed assets, net Intangible assets, net % 23.7% % 0.9% 4.6% Other assets % 100.0% Total assets % Liabilities Current liabilities % 48.2% 16.4% % Long-term liabilities Total liabilities Stockholders' equity % 64.6% % 35.4% Total common stockholders' equity 100.0% Total liabilities and equity % Requirement 2. For the profitability analysis, compute McConnell 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 McConnell Department Stores' profit performance better or worse than the industry average? McConnell's common-size income statement shows that its ratios of gross profit, operating income, and net income to sales are than the industry averages. Overall, McConnell's profit performance is than average for the industry. Requirement 3. For the analysis of financial position, compute McConnell 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 McConnell Department Stores' financial position better or worse than the industry averages? McConnell'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 V than the industry averages. Overall, McConnell's financial position is than average for the industry. A B 1 2 3 McConnell Department Stores, Inc. Income Statement Compared with Industry Average For the Year Ended December 31 (amounts in thousands) Industry McConnell Average 4 5 6 Sales revenues $ 781,000 100.0% 527,175 65.7% 253,825 34.3% 162,448 19.9% 7 Less: Cost of goods sold 8 Gross profit $ 9 Less: Operating expenses 10 Operating income $ 11 Less: Interest expense 12 Income before income taxes $ 91,377 14.4% 781 0.3% 90,596 14.1% 13 Less: Income tax expense 7,029 0.2% 14 Net income $ 83,567 13.9% A B 1 2 3 McConnell Department Stores, Inc. Balance Sheet Compared with Industry Average As of December 31 (amounts in thousands) Industry McConnell Average 4 5 6 Assets 7 Current assets $ 285,180 70.8% 8 Fixed assets, net 107,520 23.7% 9 Intangible assets, net 5,040 0.9% 10 Other assets 22,260 4.6% 11 Total assets $ 420,000 100.0% 12 Liabilities 13 Current liabilities $ 192,360 48.2% 14 Long-term liabilities 94,920 16.4% $ 287,280 64.6% 15 Total liabilities 16 Stockholders' equity 17 Total common stockholders' equity $ 132,720 35.4% 18 Total liabilities and equity $ 420,000 100.0%