Mini Case This Mini Case is available in MyLab Finance. Below are the financial statements for two entertainment firms, Crosby Co. and Prairie Inc. for 2017 and 2018 a. How did Crosby Co.'s profit margins change from 2017 to 2018? To what would you attribute the differences? Answer the same question for Prairie Inc. b. Compare the profit margins between Crosby Co. and Prairie Inc. How are they different? How would you explain these differences? c. What differences do you notice in the common-sized balance sheets that might indicate that one of the firms is doing better than the other? 2018 Crosby Co. Annual Income Statement and Comman-sized Income Statement for Years Ending December 31, 2017 and 2018 (in $ millions except earnings per share) 2017 Dollars Percentage of Sales Sales $28,729 100.0% Cost of goods sold 15,934 555% Gross profits $12,795 44.5% Selling, general, and administrative 6,333 22.0% expenses Depreciation and amortization 248 0.9% Other operating expenses 296 1.0% Dollars $29,795 16,230 $13,565 6,465 Percentage of Sales 100.0% 54.5% 45.5% 21.7% 251 0.8% 0.8% 244 92 PART 1 The Scope and Environment of Financial Management 2017 2018 Percentage of Sales 20.6% Operating income Interest expense Nonoperating income (expenses) Earnings before tax Income taxes Net income Common shares outstanding Earnings per share Dollars $5,918 1.253 217 $4,418 1.526 $2.972 932.00 $3.14 -0.8% 15.5% 53% 10.2% Dollars $6,605 1,190 112 $5,303 1612 $2759 942.00 $3.92 Percentage of Sales 22.2% 4.0% -0.4% 17.8% 5.4% 124% Crosby Co. Balance Sheet and Common-Sized Balance Sheet for Years Ending December 31, 2017 and 2018 (millions) ASSETS December 31, 2017 December 31, 2018 Enrings per share $3.14 $3.92 Crashy Co. Balance Sheat and Common-Sized Balance Sheet for Years Ending December 31, 2017 and 2018 (millions) ASSETS December 31, 2017 December 31, 2018 Dollars Percentage of Assets Dollars Percentage of Assets Cash and short-term investments $2,841 4.2% $1,862 2.7% Receivables 7,385 10.8% 7,868 11.6% Inventories 2,036 3.0% 2,028 3.0% Other current assets 1,002 1.5% 1,086 1.6% Total current assets $13,264 19.5% $12,844 18.9% Gross feed assets $57,607 84.6% $57.849 85.12 Accumulated depreciation and amortiza- (4.828) 7.1% (5,189) --7.6% tion Net fixed assets $52,779 77.5% $52,660 77.4% Other assets 2,046 3.0% 2,490 3.7% TOTAL ASSETS $68,089 100.0% $57.994 100.0% LIABILITIES Accounts payable and accruals $8,039 11.8% $7,322 10.8% Short-term notes payable 1.1% 66 0.1% Other current liabilities 1,011 1.5% 995 1.5% Total current liabilities $9.799 14.4% $8,383 12.3% Long-term debt 19.122 28.1% 20,099 29.6% Deferred taxes 2.127 3.1% 2,642 3.9% Other liabilities 7241 10.6% 5.966 10.2% TOTAL LIABILITIES $38 292 56.2% $38,090 56.0% EQUITY Common stock Par value 0.0% $17 0.0% Capital surplus 154.577 227.0% 225.6% Total common stock sold $154.594 227.0% $153.427 225,6% Less Treasury stocktotal dollar amount 35,077 51.5% 137630) 553% Total common stock $119.517 175.5% 5115,797 170.3% Retained carings (89,720 -1318% -126.3% Total common equity $2979 $29,901 TOTAL LIABILITIES AND EQUITY 400 $68.08 100% $62994 10002 749 $11 153.410 CHAPTER 3 . Understanding Financial Statements and Cash Flows 93 2018 Prairie Inc. Annual Income Statement for Years Ending December 31, 2017 and December 31, 2018 (in $ millions except earnings per share) 2017 Sales $42.278 100.0% Cost of goods sold (33415) -79.0% Gross profits $8,863 21.0% Selling general, and administrative expenses (139) -0.3% Operating income $8,724 20.6% Interest expense (369) 0.9% Nonoperating income (expenses) 905 2.1% Earnings before tax $9.260 21.9% Income taxes (3.087) -73% Net income foss) 14.6% $45,041 (35,591) $9,450 (283) $9.167 (235) 688 $9,620 (2.984 $6.636 100.0% -79.0% 21.0% -0.6% 20.4% -0.5% 1.5% 21.4% 14.7% Prairie Inc. Balance Sheet for Years Ending December 28, 2017 and December 29, 2018 ($ millions) ASSETS December 31, 2017 December 31, 2018 Dollars Parcentage of Sales Dollars Parcentageof Sales Cash and cash equivalents $3,387 5% $3,931 5% Receivables 6,540 9% 6,967 9% Inventories 1,537 2% 1,487 2% Other current assets 2245 3% 1724 2% Total current assets $13,709 18% $14,109 17% Gross fixed assets $38,582 52% $41,192 51% Accumulated depreciation (20,687) -28% (22,459) -28% Net fixed assets $17,895 24% $18.733 23% Other assets 43294 58% 48.399 60% TOTAL ASSETS $74.898 100% $81.241 100% LIABILITIES Accounts payable and accruals $4,619 6% $4,899 6% Short-term notes payable 3,614 5% 1,512 2% Other current liabilities 4.580 5293 7% Total current liabilities $12,813 17% $11,704 14% Long-term debt 10,981 15% 13,050 Deferred taxes 2.251 3% 4,050 5% Other liabilities 9,094 12% 7,008 9% TOTAL LIABILITIES $35,139 47% $35,812 EQUITY Common equity Total common stock sold $31.731 42% $33.440 41% Less: Treasury stock (31.671) (34.582) Total common stock $60 0% 151.142 -1% Retained earnings 42,965 57% 17.758 59% $3266 -4% $1.187 -1% Totalcommon equity $39,759 53% $45.429 TOTAL LIABILITIES AND EQUITY $76891 100 $81.241 100% 16% Other equity Mini Case This Mini Case is available in MyLab Finance. Below are the financial statements for two entertainment firms, Crosby Co. and Prairie Inc. for 2017 and 2018 a. How did Crosby Co.'s profit margins change from 2017 to 2018? To what would you attribute the differences? Answer the same question for Prairie Inc. b. Compare the profit margins between Crosby Co. and Prairie Inc. How are they different? How would you explain these differences? c. What differences do you notice in the common-sized balance sheets that might indicate that one of the firms is doing better than the other? 2018 Crosby Co. Annual Income Statement and Comman-sized Income Statement for Years Ending December 31, 2017 and 2018 (in $ millions except earnings per share) 2017 Dollars Percentage of Sales Sales $28,729 100.0% Cost of goods sold 15,934 555% Gross profits $12,795 44.5% Selling, general, and administrative 6,333 22.0% expenses Depreciation and amortization 248 0.9% Other operating expenses 296 1.0% Dollars $29,795 16,230 $13,565 6,465 Percentage of Sales 100.0% 54.5% 45.5% 21.7% 251 0.8% 0.8% 244 92 PART 1 The Scope and Environment of Financial Management 2017 2018 Percentage of Sales 20.6% Operating income Interest expense Nonoperating income (expenses) Earnings before tax Income taxes Net income Common shares outstanding Earnings per share Dollars $5,918 1.253 217 $4,418 1.526 $2.972 932.00 $3.14 -0.8% 15.5% 53% 10.2% Dollars $6,605 1,190 112 $5,303 1612 $2759 942.00 $3.92 Percentage of Sales 22.2% 4.0% -0.4% 17.8% 5.4% 124% Crosby Co. Balance Sheet and Common-Sized Balance Sheet for Years Ending December 31, 2017 and 2018 (millions) ASSETS December 31, 2017 December 31, 2018 Enrings per share $3.14 $3.92 Crashy Co. Balance Sheat and Common-Sized Balance Sheet for Years Ending December 31, 2017 and 2018 (millions) ASSETS December 31, 2017 December 31, 2018 Dollars Percentage of Assets Dollars Percentage of Assets Cash and short-term investments $2,841 4.2% $1,862 2.7% Receivables 7,385 10.8% 7,868 11.6% Inventories 2,036 3.0% 2,028 3.0% Other current assets 1,002 1.5% 1,086 1.6% Total current assets $13,264 19.5% $12,844 18.9% Gross feed assets $57,607 84.6% $57.849 85.12 Accumulated depreciation and amortiza- (4.828) 7.1% (5,189) --7.6% tion Net fixed assets $52,779 77.5% $52,660 77.4% Other assets 2,046 3.0% 2,490 3.7% TOTAL ASSETS $68,089 100.0% $57.994 100.0% LIABILITIES Accounts payable and accruals $8,039 11.8% $7,322 10.8% Short-term notes payable 1.1% 66 0.1% Other current liabilities 1,011 1.5% 995 1.5% Total current liabilities $9.799 14.4% $8,383 12.3% Long-term debt 19.122 28.1% 20,099 29.6% Deferred taxes 2.127 3.1% 2,642 3.9% Other liabilities 7241 10.6% 5.966 10.2% TOTAL LIABILITIES $38 292 56.2% $38,090 56.0% EQUITY Common stock Par value 0.0% $17 0.0% Capital surplus 154.577 227.0% 225.6% Total common stock sold $154.594 227.0% $153.427 225,6% Less Treasury stocktotal dollar amount 35,077 51.5% 137630) 553% Total common stock $119.517 175.5% 5115,797 170.3% Retained carings (89,720 -1318% -126.3% Total common equity $2979 $29,901 TOTAL LIABILITIES AND EQUITY 400 $68.08 100% $62994 10002 749 $11 153.410 CHAPTER 3 . Understanding Financial Statements and Cash Flows 93 2018 Prairie Inc. Annual Income Statement for Years Ending December 31, 2017 and December 31, 2018 (in $ millions except earnings per share) 2017 Sales $42.278 100.0% Cost of goods sold (33415) -79.0% Gross profits $8,863 21.0% Selling general, and administrative expenses (139) -0.3% Operating income $8,724 20.6% Interest expense (369) 0.9% Nonoperating income (expenses) 905 2.1% Earnings before tax $9.260 21.9% Income taxes (3.087) -73% Net income foss) 14.6% $45,041 (35,591) $9,450 (283) $9.167 (235) 688 $9,620 (2.984 $6.636 100.0% -79.0% 21.0% -0.6% 20.4% -0.5% 1.5% 21.4% 14.7% Prairie Inc. Balance Sheet for Years Ending December 28, 2017 and December 29, 2018 ($ millions) ASSETS December 31, 2017 December 31, 2018 Dollars Parcentage of Sales Dollars Parcentageof Sales Cash and cash equivalents $3,387 5% $3,931 5% Receivables 6,540 9% 6,967 9% Inventories 1,537 2% 1,487 2% Other current assets 2245 3% 1724 2% Total current assets $13,709 18% $14,109 17% Gross fixed assets $38,582 52% $41,192 51% Accumulated depreciation (20,687) -28% (22,459) -28% Net fixed assets $17,895 24% $18.733 23% Other assets 43294 58% 48.399 60% TOTAL ASSETS $74.898 100% $81.241 100% LIABILITIES Accounts payable and accruals $4,619 6% $4,899 6% Short-term notes payable 3,614 5% 1,512 2% Other current liabilities 4.580 5293 7% Total current liabilities $12,813 17% $11,704 14% Long-term debt 10,981 15% 13,050 Deferred taxes 2.251 3% 4,050 5% Other liabilities 9,094 12% 7,008 9% TOTAL LIABILITIES $35,139 47% $35,812 EQUITY Common equity Total common stock sold $31.731 42% $33.440 41% Less: Treasury stock (31.671) (34.582) Total common stock $60 0% 151.142 -1% Retained earnings 42,965 57% 17.758 59% $3266 -4% $1.187 -1% Totalcommon equity $39,759 53% $45.429 TOTAL LIABILITIES AND EQUITY $76891 100 $81.241 100% 16% Other equity