learning objectives preparing common size statements analyzing profitability making 497654

Learning Objectives : Preparing common-size statements; analyzing
profitability; making comparisons with the industry”

Top managers of McDonough Products, Inc., have asked for your help in comparing the company s profit performance and financial position with the average for the industry. The accountant has given you the company s income statement and balance sheet and also the following data for the industry. The problem is that McDonough is in dollars and the Industry Average is in percentages. To complete the analysis you will need to convert McDonoughs dollar amounts to percentages.

McDonough Products, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 2010
McDonough “Industry
Average”
Net sales……………………………………………………………………. $700,000 100.0%
Cost of goods sold…………………………………………………….. 490,000 57.3
Gross profit……………………………………………………………….. 210,000 42.7
Operating expenses ………………………………………………….. 175,000 29.4
Operating income………………………………………………………. 35,000 13.3
Other expenses………………………………………………………….. 7,000 2.5
Net income ……………………………………………………………….. $28,000 10.8%

McDonough Products, Inc.
Balance Sheet Compared with Industry Average
December 31, 2010
McDonough “Industry
Average”
Current assets……………………………………………………………. $471,200 72.1%
Fixed assets, net ……………………………………………………….. 114,700 19.0
Intangible assets, net …………………………………………………. 21,080 4.8
Other assets………………………………………………………………. 13,020 4.1
Total …………………………………………………………………………. 620,000 100.0%

Current liabilities ……………………………………………………….. 240,560 47.2%
Long-term liabilities …………………………………………………… 135,160 21.0
Stockholders equity…………………………………………………… 244,280 31.8
Total …………………………………………………………………………. $620,000 100.0%

Industry Average Current Ratio 1.53

Industry Average Total Debt to Total Assets 0.68