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Income Statement 2019 Common Size Income Statement Details 2019 2018 Sales 30,000,000 Sales/Sales 100.00% 100.00% Less:...

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.

Solutions

Expert Solution

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.


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