Perez & Serrano Co.

Income Statement for the year ending December 31, 2019

(in thousands of dollars)

Net sales

$4980

Cost of goods sold

__2246

Gross profits

$2734

Other operating expenses

__125

Earnings before interest, taxes and depreciation

$2609

Depreciation

__200

Earnings before interest and taxes (EBIT)

$2406

Interest expenses

__315

Earnings before taxes (EBT)

_$2094

Taxes

764

Net income

_$1327

Preferred stock dividends

$__60

Net income available for common stock

_$1267

Common stock dividends

___395

Addition to retained earnings

$__872

Per (common) share data

Earnings per share (EPS)

$6.34

Dividends per share (DPS)

$1.98

Book value per share (BVPS)

$19745

Market value (price) per share

$26850

Other financial Data for Perez & Serrano Co.

Industry

Times Interest earned = (EBIT / interest expense) 7.25

Net profit margin = (Net profit/sales)18.75%

Operating profits margin = (EBIT/sales)42.02%

Gross profit margin = (sales - cost of goods sold/sales)49.16%

Part I Using Excel or any other electronic sheet, prepare the Common Sized Income Statement for Perez & Serrano Co.

Part II Compute the followings profitability ratios, compare with the industry and evaluate the performance of the Perez & Serrano, Inc. using the scale: better, on par or worse.

a. Gross profits ratio =

b. Operating profits margin =

c. Net profit margin =

Part III If the gross profits ratio for Perez & Serrano Co. is worse than the industrys gross profit ratio. You are the financial analyst for Perez & Serrano Co. and the management ask you a recommendation for improve that ratio. What would you recommend? Why?