Question

Baresse Corporation: Income Statements for Year Ending December 31

(Millions of Dollars)

	2019	2018
Sales	$11,000	$10,000
Operating costs excluding depreciation	9,360	8,500
Depreciation and amortization	380	360
Earnings before interest and taxes	$1,260	$1,140
Less interest	120	100
Pre-tax income	$1,140	$1,040
Taxes (40%)	$456	$416
Net income available to common shareholders	$684	$624
Common dividends	$220	$200

Baresse Corporation: Balance Sheets as of December 31 (Millions of Dollars)

	2019	2018
Assets
Cash	$550	$500
Short term investments	110	100
Accounts receivable	2,750	2,500
Inventories	1,650	1,500
Total current assets	$5,060	$4,600
Net plant and equipment	3,850	3,500
Total assets	$8,910	$8,100
Liabilities and Equity
Accounts payable	$1,100	$1,000
Accruals	550	500
Notes payable	384	200
Total current liabilities	$2,034	$1,700
Long term debt	1,100	1,000
Total liabilities	$3,134	$2,700
Common stock	4,312	4,400
Retained earnings	1,464	1,000
Total common equity	5,776	5,400
Total liabilities and equity	$8,910	$8,100

1.Construct a common-sized income statement for 2018 and 2019. Comment on any changes you see.

Answer 1

1. Constructing a common-sized income statement for 2018 and 2019: (amount in millions $)

Particular	2019	2018	2019	2018	Comments
Sales	11,000.00	10,000.00	100.00%	100.00%	Unchanged
Operating Costs excluding depreciation	9,360.00	8,500.00	85.09%	85.00%	Almost Same
Depreciation & Amortization	380.00	360.00	3.45%	3.60%	Decreased
EBIT	1,260.00	1,140.00	11.45%	11.40%	Almost Same
interest	120.00	100.00	1.09%	1.00%	Almost Same
Taxable Income	1,140.00	1,040.00	10.36%	10.40%	Almost Same
Taxation @ 40%	456.00	416.00	4.15%	4.16%	Almost Same
Net income	684.00	624.00	6.22%	6.24%	Almost Same
Common Dividend	200	200	1.82%	2.00%	Decreased