In: Finance
Income Statement 2019 | Common Size Income Statement | ||||
Details | 2019 | 2018 | |||
Sales | 30,000,000 | Sales/Sales | 100.00% | 100.00% | |
Less: Cost of Goods Sold | 21,000,000 | Cost of Goods Sold/Sales | 70.00% | 65.90% | |
Gross Profits | 9,000,000 | Gross Profits/Sales | 30.00% | 34.10% | |
Less: Operating Expenses | Less: Operating Expenses | ||||
Selling Expense | 3,000,000 | Selling Expense/Sales | 10.00% | 12.70% | |
General and Administrative Expenses | 1,800,000 | General and Administrative Expenses/Sales | 6.00% | 6.30% | |
Lease Expense | 200,000 | Lease Expenses/Sales | 0.67% | 0.60% | |
Depreciation Expense | 1,000,000 | Depreciation Expense/Sales | 3.33% | 3.60% | |
Total Operating Expense | 6,000,000 | Total Operating Expense/Sales | 20.00% | 23.20% | |
Operating Profits | 3,000,000 | Operating Profits/Sales | 10.00% | 10.90% | |
Less: Interest Expense | 1,000,000 | Interest Expense/Sales | 3.33% | 1.50% | |
Net Profits Before Taxes | 2,000,000 | Net Profits Before Taxes/Sales | 6.67% | 9.40% | |
Less: Taxes (Rate= 21%) | 420000 | Taxes/Sales | 1.40% | 1.97% | |
Net Profits After Taxes | 1,580,000 | Net Profits After Taxes/Sales | 5.27% | 7.43% | |
Less: Preferred Stock Dividends | 100,000 | Preferred Stock Dividends/Sales | 0.33% | 0.10% | |
Earnings Available For Common Stockholders | 1,480,000 | Earnings Available For Common Stockholders/Sales | 4.93% | 7.33% | |
The areas which require further analysis and investigation are: I already created the 2019 Common Size Income Statement. All I need is some areas which require further analysis and investigation. If you could list at least 5 areas that would be great. Thank you very much. Also, the figures should be shown correctly. |
Some of the five areas which can be taken for further investigation are.
A) Cost of Goods Sold - We can observe that the cost of goods sold as a percentage of sales has risen to 70.00% this has made the gross profit ratio to fall. We can correlate this to the rising prices of goods as a part of inflation. The comapny has to take appropriate steps inorder to reduce the cost of goods sold by using caost aving techniques in production ( in case of Manufacturing) or selecting the best supplier who can give products for lower prices and with utmost quality( for trading Entities)
B) Depreciation Expense - During the year 2019 depreciation has reduced to 3.33% from 3.60% precentage as compared to the last year. With this we can estimate that the company is using Written Down Value method or esle we can also say that there might be some deletions from the block of fixed assets.
C)Net profit Before taxes - Net profit before taxes has reduced significantly to 6.67% as compared to 9.40% of the previous year. This can be attributed to fall in the gross profit due to increase in the cost of goods sold moreover we can also see that there is no sgnificant change in other expenses and operating expenses during the year. Hence we can say that the fall in net proift might be due to fall in gross profit
D) Preferred stock dividend - Preferred stock dividend during the current year has increased during the current year to 0.33%. Cumulative preference shares for which dividend has not been given during the previous year might be paid dividend duing the current year. High preference share dividend and fall in net profit after taxes has reduced the earnings attriutable to equity share holders to 4.93%
E) Selling Expense - Selling expense during the current year has reduced to 10.00%, this can be attributed to fall in distribution and marketing expense, low cost transportation, better logisitcs and low marketing cost might have reduced the selling expense. High demand for the company products during the current year can also reduce selling cost as it does not require high advertising.