Requirements

1. Convert the 2014 and 2015 Income Statements to Common Size. Present the formula for each statement and show computation. (15 marks)

2. Present and comment on the Gross Profit and Return on Net Sales for both years. (10 marks)

3. Perform a Horizontal Analysis of the Asset section of the balance sheet. Present the formula and show computation. (10 marks)

4. Compute the following Ratios for 2015: (15 marks)

a. Current Ratio

b. Accounts Receivable Turnover

c. Debt Ratio

1 ABC Company Comparative Income Statements 3 1 2015 $ 65,000 38,000 27,000 2014 $ 67,660 41,000 26,660 5 5 Sales Revenue 7 Cost of Goods Sold B Gross Profit Operating Expenses: o Selling, General & Admin Expense 1 Depreciation 2 Operating Income 3 Interest Expense 4 Income tax expense 5 Net Income 11,550 1,745 13,705 1,475 1,225 11,005 15,000 2,860 8,800 1,690 1,200 5,910 6 ABC Company Comparative Balance Sheets Assets Current Assets Assets Cash 46,000 40,000 Accounts Receivable 8,000 10,000 Inventory 34,000 30,000 Total current assets 88,000 80,000 Property Plant and Equipment: Plant and equipment, net 65,000 52,000 Land 50,000 50,000 Total Assets 203,000 182,000 Liabilities Current Liabilities: Accounts payable Accrued liabilities Notes payable Total current liabilites Long term liabilities Total liabilities Stockholder's Equity common stock Retained earnings Total Stockholders' equity Total Liabilities and Equity 44,000 38,000 20,000 18,000 18,000 22,000 82,000 78,000 45,000 44,000 127,000 122,000 31,000 24,000 45,000 36,000 76,000 60,000 203,000 182,000