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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? Crosby Co. Annual Income Statement and Common-sized Income Statement for Years Ending December 31, 2017 and 2018 (in $ millions except earnings per share) 2017 2018 Dollars Dollars Percentage of Sales Percentage of Sales Sales $28,729 100.0% $29.795 100.0% Cost of goods sold 15,934 55.5% 16.230 54.5% Gross profits $12,795 44.5% $13,565 45.5% 6,333 22.0% 6,465 21.7% Selling, general, and administrative expenses Depreciation and amortization 248 0.9% 251 0.8% Other operating expenses 296 1.0% 244 0.8% Operating income $5,918 20.6% $6,605 22.2% Interest expense 1,253 4.4% 1,190 4.0% Nonoperating income (expenses) 217 -0.8% 112 -0.4% Earnings before tax $4,448 15.5% $5,303 17.8% Income taxes 1.526 5.3% 1612 5.4% Net income $2.922 10.2% $3,691 12.4% Common shares outstanding 932.00 942.00 Earnings per share $3.14 $3.92 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 Dollars Dollars Percentage of Assets Percentage of Assets Cash and short-term investments $2,841 4.2% $1,862 2.7% Receivables 7,385 10.8% 7,888 11.6% Inventories 2,036 3.0% 2.028 3.0% Other current assets 1.002 1.5% 1086 1.6% Total current assets $13,264 19.5% $12.844 18.9% Gross foxed assets $57 607 84.8% $57,849 85.1% $4.828) -7.1% 5.189 -7.6% Accumulated depreciation and amortization Net fixed assets $52.779 77.5% $52,680 77.4% Other assets 2.046 3.0% 2.490 3.7% TOTAL ASSETS $88,089 100.0% $87,994 100.0% LIABILITIES Accounts payable and accruals $8,039 11.8% $7,322 10.8% Short-term notes payable 749 1.1% 88 0.1% Other current liabilities 1,011 1.5% 995 1.5% Total current liabilities $9.799 14.4% $8.383 12.39 Long-term debt 19,122 28.1% 20,000 29.8% Deferred taxes 2.127 3.1% 2,642 3.9% Other abilities 7.244 10.8% 8.988 10.2% TOTAL LIABILITIES 538,292 56.2% $38,090 58.0% EQUITY Common stock Par value $17 0.0% $17 0.0% Capital surplus 154.577 227.0% 153,410 225.6% Total common stock sold $154.594 227.0% $153,427 225.6% Total common stock sold $154.594 227.0% $153,427 225.8% Less: Treasury stock-total dollar 35077) -51.5% (37,630) -51.3% amount Total common stock $119.517 175.5% $115,797 170.3% Retained earnings 188.721) -131.8% 685,893) -126.3% Total common equity $29.798 43.8% $29.004 44.0% TOTAL LIABILITIES AND EQUITY $88,080 100% $67,994 100.0% Prairie Inc. Annual Income Statement for Years Ending December 31, 2017 and December 31, 2018 (in $ millions except earnings per share) 2017 2018 Sales S42278 100.0% $45,041 100.0% Cost of goods sold (33.415) -79.0% (35,591) -79.0% Gross profits $8,863 21.0% $9,450 21.0% Seling general, and administrative expenses (139) -0.3% (283) -0.6% Operating income 58.724 20.8% $9,187 20.4% Interest expense (369) 0.9% (235) -0.5% Nonoperating income (expenses) 905 2.1% 888 1.5% Earnings before tax $9,260 21.9% $9,820 21.4% Income taxes (3.087) -7.3% 2.984) -6.6% Net income (loss) 58,173 14.6% $8,636 14.7% Prairie Inc. Balance Sheet for Years Ending December 28, 2017 and December 29, 2018 (5 millions) December 31, 2018 ASSETS December 31, 2017 Dollars Percentage of Sales Dollars Percentageof Sales Cash and cash equivalents $3,387 5% $3,931 5% Receivables 6,540 9% 8.987 9% Inventories 1,537 2% 1,487 2% Other current assets 2.246 3% 1,724 2% Total current assets $13.709 18% $14,109 17% Gross fixed assets $38.582 52% $41,192 51% Accumulated depreciation 120,687) -28% (22.450) -28% ASSETS December 31, 2017 December 31, 2018 Dollars Percentage of Sales Dollars Percentageof Sales Cash and cash equivalents $3,387 5% $3,931 % 5% Receivables 8,540 9% 8.987 9% Inventories 1.537 2% 1,487 2% Other current assets 2.245 1,724 Total current assets $13,709 18% S14,102 17% Gross foxed 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 43.294 58% 48.399 60% TOTAL ASSETS $74.898 100% $81,241 100% LIABILITIES Accounts payable and accruals S4.619 8% $4,899 8% Short-term notes payable 3,814 5% 1,512 2% Other current liabilities 4.580 6% 5.293 7% Total current liabilities $12.813 17% $11,704 14% Long-term debt 10.981 15% 13.050 16% Deferred taxes 2.251 3% 4,050 5% Other liabilities 9.094 12% 7,008 9% TOTAL LIABILITIES $35,130 479 S35,812 EQUITY Common equity Total common stock sold $31.731 42% $33,440 41% Less: Treasury stock 31,871). -42% (34,582 Total common stock $60 0% (S1,142 -1% Retained earnings 42.965 57% 47,758 59% Other equity $3.286 -4% $1,187 Total common equity $39.759 53% S45.429 56% TOTAL LIABILITIES AND EQUITY $74,898 100% $81,241 100%