Principles of Managerial Finance Vol 14

P 3-20 Common-size Statement Analysis

common-size income statement for Creek Enterprises 2014 operations follows. Using the firms 2015 income statement presented in Problem 318*, develop the 2015 common-size income statement and compare it with the 2014 statement. Which areas require further analysis and investigation?

Creek Enterprises Common-Size Income Statement for the Year Ended Dec. 31, 2014

Sales revenue ($35,000,000)	100.0%
Less: Cost of goods sold	65.9
Gross profits	34.1%
Less: Operating expenses
Selling expense	12.7%
General and administrative expenses	6.3
Lease expense	0.6
Depreciation expense	3.6
Total operating expense	23.2
Operating profits	10.9%
Less: Interest expense	1.5
Net profits before taxes	9.4%
Less: Taxes (rate=40%)	3.8
Net profits after taxes	5.6%
Less: Preferred stock dividends	0.1
Earnings available for common stockholders	5.5%

*Income statement provided by P 3-18

Creek Enterprises Income Statement for the Year Ending Dec 31, 2015

Sales Revenue	$30,000,000
Less: Cost of goods sold	21,000,000
Gross profits	9,000,000
Less: Operating expenses
Selling expense	$ 3,000,000
General and administrative expenses	1,800,000
Lease expense	200,000
Depreciation expense	1,000,000
Total operating expense	$ 6,000,000
Operating profits	$ 3,000,000
Less: Interest expense	1,000,000
Net profits before taxes	$ 2,000,000
Less: Taxes (rate=40%)	800,000
Net profits after taxes	$ 1,200,000
Less: Preferred stock dividendes	100,000
Earnings available for common stockholders	$ 1,100,000