Requirement 1. Prepare a common-size income statement for

Specialty Department Stores, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
				Industry
			Specialty	Average
		Net sales	$780,000	100.0 %
		Cost of goods sold	524,160	65.8
		Gross profit	255,840	34.2
		Operating expenses	159,900	19.7
		Operating income	95,940	14.5
		Other expenses	7,020	0.4
		Net income	$88,920	14.1 %

Specialty Department Stores, Inc.
Common-Size Income Statement Compared to Industry Average
Year Ended December 31, 2010
			Specialty	Industry
			(%)	Average (%)
		Net sales		100.0
		Cost of goods sold		65.8
		Gross profit		34.2
		Operating expenses		19.7
		Operating income		14.5
		Other expenses		0.4
		Net income		14.1

Prepare a common-size balance sheet for SpecialtySpecialty.

(Round your answers to one decimal place.)

Specialty Department Stores, Inc.
Common-Size Balance Sheet Compared with Industry Average
December 31, 2010
			Specialty	Industry
			(%)	Average (%)
		Current assets		70.9
		Fixed assets, net		23.6
		Intangible assets, net		0.8
		Other assets		4.7
		Total assets		100.0
		Current liabilities		48.1
		Long-term liabilities		16.6
		Stockholders' equity		35.3
		Total liabilities and stockholders' equity		100.0

Specialty Department Stores, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
				Industry
			Specialty	Average
		Net sales	$780,000	100.00%
		Cost of goods sold	524,160	65.8
		Gross profit	255,840	34.2
		Operating expenses	159,900	19.7
		Operating income	95,940	14.5
		Other expenses	7,020	0.4
		Net income	$88,920	14.10%

Specialty Department Stores, Inc.
Balance Sheet Compared with Industry Average
31-Dec-10
				Industry
			Specialty	Average
		Current assets	$304,200	70.90%
		Fixed assets, net	113,400	23.6
		Intangible assets, net	9,000	0.8
		Other assets	23,400	4.7
		Total assets	$450,000	100.00%
		Current liabilities	$208,800	48.10%
		Long-term liabilities	99,000	16.6
		Stockholders' equity	142,200	35.3
		Total liabilities and stockholders' equity	$450,000	100.00%

Requirement 2. For the profitability analysis, compute Specialty Specialty's

(a) ratio of gross profit to net sales, (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages.

SpecialtySpecialty's common-size income statement shows that its ratios of gross profit, operating income and net income to net sales are better or worse

than the industry averages. Overall,

SpecialtySpecialty's profit performance is better or worse than average for the industry.Requirement 3. For the analysis of financial position, compute

SpecialtySpecialty's

(a) ratio of current assets to total assets and (b) ratio of stockholders' equity to total assets. Compare these ratios with the industry averages.

Specialty'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 better worse

than the industry averages. Overall, Specialty Specialty's financial position is better or worse than average for the industry.

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