Financial Accounting, Student Value Edition (5th Edition)
5th Edition
ISBN: 9780134728520
Author: Robert Kemp, Jeffrey Waybright
Publisher: PEARSON
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Textbook Question
Chapter 12, Problem 32AP
Common-size financial statements and profitability ratios (Learning Objective 2) 20-25 min.
Otto's Auto Sales asked for your help in comparing the company's profit performance and financial position with the average for the auto sales industry. The owner has given you the company’s income statement and
| Otto's Auto Sales Income Statement Compared with Industry Average Year Ended December 31,2018 |
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| OTTO’S | INDUSTRY AVERAGE |
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| Met Sales | $955,100 | 100.0% | ||
| Cost of Goods Sold | 651,400 | 64.3% | ||
| Gross Profit | 303,700 | 35,7% | ||
| Operating Expenses | 217,800 | 27.3% | ||
| Operating Income | 85,900 | 8.4% | ||
| Other Expenses | 11,500 | 1.1% | ||
| Net Income | $74,400 | 7.3% | ||
| Otto's Auto Sales Balance Sheet Compared with Industry Average December 31,2018 |
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| OTTO’S | INDUSTRY AVERAGE |
|||
| Current Assets | $516,800 | 77.2% | ||
| Fixed Assets, Net | 112,300 | 16.3% | ||
| Intangible Assets, Net | 23,100 | 2.8% | ||
| Other Assets | 27,900 | 3.7% | ||
| Total Assets | $680,100 | 100.0% | ||
| Current Liabilities | $260,600 | 40.1% | ||
| Long-Term Liabilities | 129,200 | 20.3% | ||
| Stockholders' Equity | 282,300 | 39.6% | ||
| Total Liabilities and |
$680,100 | 100.0% | ||
Requirements
- 1. Prepare a two-column common-size income statement and a two-column common-size balance sheet for Otto's Auto Sales. The first column of each statement should present Otto’s Auto Sales' common-size statement and the second column should show the industry averages.
- 2. For the profitability analysis, examine Otto’s Auto Sales'(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. Is Otto’s profit performance better or worse than the industry average?
- 3. For the analysis of financial position, examine Otto’s Auto Sales' (a) ratio of current assets to total assets, and (b) ratio of stockholders' equity to total assets. Compare these ratios with the industry averages. Is Otto’s Auto Sales’ financial position better or worse than the industry average?
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Chapter 12 Solutions
Financial Accounting, Student Value Edition (5th Edition)
Ch. 12 - Prob. 1DQCh. 12 - Which amount is the base amount for vertical...Ch. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - How would you expect a recession to affect asset...Ch. 12 - Prob. 9DQCh. 12 - Prob. 10DQ
Ch. 12 - Prob. 1SCCh. 12 - Prob. 2SCCh. 12 - Prob. 3SCCh. 12 - Prob. 4SCCh. 12 - Prob. 5SCCh. 12 - Prob. 6SCCh. 12 - Prob. 7SCCh. 12 - Prob. 8SCCh. 12 - Prob. 9SCCh. 12 - Prob. 10SCCh. 12 - Prob. 11SCCh. 12 - Prob. 12SCCh. 12 - Prob. 1SECh. 12 - Prob. 2SECh. 12 - Prob. 3SECh. 12 - Prob. 4SECh. 12 - Prob. 5SECh. 12 - Prob. 6SECh. 12 - Prob. 7SECh. 12 - Prob. 8SECh. 12 - Prob. 9SECh. 12 - Prob. 10SECh. 12 - Horizontal analysis(Learning Objective 2)15-20 min...Ch. 12 - Prob. 12AECh. 12 - Horizontal analysis(Learning Objective 2)15-20...Ch. 12 - Prob. 14AECh. 12 - Prob. 15AECh. 12 - Prob. 16AECh. 12 - Prob. 17AECh. 12 - Horizontal analysis(Learning Objective 2)15-20...Ch. 12 - Prob. 26BECh. 12 - Prob. 27BECh. 12 - Prob. 28BECh. 12 - Prob. 29BECh. 12 - Prob. 30BECh. 12 - Trend percentages and return on assets (Learning...Ch. 12 - Common-size financial statements and profitability...Ch. 12 - Current ratio, debt ratio, EPS (Learning Objective...Ch. 12 - Calculating various ratios for analysis (Learning...Ch. 12 - Prob. 35APCh. 12 - Prob. 36APCh. 12 - Trend percentages and return on assets (Learning...Ch. 12 - Common-size financial statements and profitability...Ch. 12 - Prob. 39BPCh. 12 - Calculating various ratios for analysis(Learning...Ch. 12 - Calculating various ratios for analysis (Learning...Ch. 12 - Prob. 42BPCh. 12 - Prob. 1CECh. 12 - Prob. 1CPCh. 12 - Prob. 1EIACh. 12 - Prob. 2EIACh. 12 - Prob. 1FACh. 12 - Industry Analysis Purpose: To help you understand...Ch. 12 - Prob. 1SBACh. 12 - Prob. 1WC
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