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Chapter 15: Q14E (page 840)

Grand Oaks Realty鈥檚 net revenue & net income for the following five-year period using 2015 as the base year, follow:

Requirement:

  1. Compute a trend analysis for the net revenue & net income. Round to the nearest full percent.

  2. Which grew faster during the period, net revenue or the net income?

Short Answer

Expert verified

Answer

1. Given below

2. Net Income Increasing More as Compare to Revenue per year.

Step by step solution

01

Calculation of Trend % as per revenue


2019 (a)

2018 (b)

2017 (c)

2016 (d)

2015 (e)

Net revenue

$1,360,000

$1,180,000

$1,147,000

$1,008,000

$1,044,000

Trend percent

130%

113%

110%

97%

100%


(a/e)

(b/e)

(c/e)

(d/e)

(e/e)

02

Step 2:Calculation of Trend % as per income


2019 (a)

2018 (b)

2017 (c)

2016 (d)

2015 (e)

Net income

127,000

120,000

87,000

75,000

83,000

Trend percent

153%

145%

105%

90%

100%


(a/e)

(b/e)

(c/e)

(d/e)

(e/e)

03

Comment

Requirement 2

Net income grew faster as compared to net revenue.

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Most popular questions from this chapter

The Randall Department Stores, Inc. chief executive officer (CEO) has asked you to compare the company鈥檚 profit performance and financial position with the averages for the industry. The CEO has given you the company鈥檚 income statement and balance sheet as well as the industry average data for retailers.

RANDALL DEPARTMENT STORES, INC.

Income Statement Compared with Industry Average

Year Ended December 31, 2018

Randall

Industry Average

Net Sales Revenue

\( 783,000

100.0%

Cost of Goods Sold

527,742

65.8

Gross Profit

255,258

34.2

Operating Expenses

163,647

19.7

Operating Income

91,611

14.5

Other Expenses

6,264

0.4

Net Income

\) 85,347

14.1%

RANDALL DEPARTMENT STORES, INC.

Balance Sheet Compared with Industry Average

December 31, 2018

Randall

Industry Average

Current Assets

\( 310,040

70.9%

Property, Plant, and Equipment, Net

119,600

23.6

Intangible Assets, Net

7,360

0.8

Other Assets

23,000

4.7

Total Assets

\) 460,000

100.0%

Current Liabilities

\( 210,680

48.1%

Long-term Liabilities

103,960

16.6

Total Liabilities

314,640

64.7

Stockholders鈥� Equity

145,360

35.3

Total Liabilities and Stockholders鈥� Equity

\) 460,000

100.0%

Requirements

  1. Prepare a vertical analysis for Randall for both its income statement and balance sheet.

Compare the company鈥檚 profit performance and financial position with the average for the industry

Completing a comprehensive financial statement analysis

In its annual report, XYZ Athletic Supply, Inc. includes the following five-year financial summary:

XYZ ATHLETIC SUPPLY, INC.

Five-Year Financial Summary (Partial; adapted)

(Dollar amounts in thousands except per share data)

2018

2017

2016

2015

2014

2016

Net sales revenue

\(275,000

\)222,000

\(199,000

\)171,000

131,000

Net Sales Revenue Increase

24%

12%

16%

31%

17%

Domestic Comparative Store Sales Increase

6%

6%

5%

8%

10%

Other Income鈥擭et

2,090

1,780

1,770

1,700

1,310

Cost of Goods Sold

208,725

169,386

154,822

134,235

103,883

Selling and Administrative Expenses

41,280

36,340

31,670

27,450

22,540

Interest:

Interest Expense

(1,070)

(1,370)

(1,330)

(1,100)

(800)

Interest Income

140

155

150

230

140

Income Tax Expense

4,420

3,900

3,610

3,390

2,730

Net Income

21,735

12,939

9,488

6,755

2,497

Per Share of Common Stock:

Net Income

1.10

0.80

0.70

0.50

0.28

Dividends

0.45

0.43

0.39

0.35

0.31

Financial Position

Current Assets, Excluding Merchandise Inventory

\(30,900

\)27,200

\(26,800

\)24,400

$21,800

Merchandise Inventory

24,700

22,400

21,600

19,300

17,000

16,800

Property, Plant, and Equipment, Net

51,600

46,200

40,500

35,000

25,200

Total Assets

107,200

95,800

88,900

78,700

64,000

Current Liabilities

32,600

27,800

28,800

25,600

17,000

Long-term Debt

23,000

21,200

16,800

18,600

12,900

Stockholders鈥� Equity

51,600

46,800

43,300

35,500

34,100

Financial Ratios

Acid-Test Ratio

0.9

1.0

0.9

1.0

1.3

Rate of Return on Total Assets

22.5%

15.5%

12.8%

10.9%

9.9%

Rate of Return on Common Stockholders鈥� Equity

44.2%

28.7%

24.1%

19.4%

18.9%

Requirements

Analyze the company鈥檚 financial summary for the fiscal years 2014鈥�2018 to decide whether to invest in the common stock of XYZ. Include the following sections in your analysis.

1. Trend analysis for net sales revenue and net income (use 2014 as the base year).

2. Profitability analysis.

3. Evaluation of the ability to sell merchandise inventory.

4. Evaluation of the ability to pay debts.

5. Evaluation of dividends.

6. Should you invest in the common stock of XYZ Athletic Supply, Inc.? Fully explain your final decision

The financial statements of Ion Corporation include the following items:

Current Year Preceding Year

Balance Sheet:

Cash \( 6,000 \) 8,000

Short-term Investments 4,400 10,700

Net Accounts Receivable 21,600 29,200

Merchandise Inventory 30,800 27,600

Prepaid Expenses 6,000 3,600

Total Current Assets 68,800 79,100

Total Current Liabilities 53,200 37,200

Income Statement:

Net Sales Revenue $ 184,800

Cost of Goods Sold 126,000

Compute the following ratios for the current year:

7. Current ratio

8. Acid-test ratio

9. Inventory turnover

10. Gross profit percentage

Preparing common-size statements, analysis of profitability and financial position, comparison with the industry, and using ratios to evaluate a company

Consider the data for Randall Department Stores presented in Problem P15-31B.

Requirements

  1. Prepare a common-size income statement and balance sheet for Randall. The first column of each statement should present Randall鈥檚 common-size statement, and the second column, the industry averages.
  2. For the profitability analysis, compute Randall鈥檚 (a) gross profit percentage and (b) profit margin ratio. Compare these figures with the industry averages. Is Randall鈥檚 profit performance better or worse than the industry average?
  3. For the analysis of financial position, compute Randall鈥檚 (a) current ratio and (b) debt to equity ratio. Compare these ratios with the industry averages. Assume the current ratio industry average is 1.47, and the debt to equity industry average is 1.83. Is Randall鈥檚 financial position better or worse than the industry averages?

Measuring profitability

Requirements

1. Compute the profit margin ratio for Accel鈥檚 Companies for 2018.

2. Compute the rate of return on total assets for 2018.

3. Compute the asset turnover ratio for 2018.

4. Compute the rate of return on common stockholders鈥� equity for 2018.

5. Are these rates of return strong or weak? Explain your reasoning.
See all solutions

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