Question

R.Kelly Company Incorporation condensed income statement for the year 2018 and 2017

2018 2017

$ $

Net Sales 6984.2 6762.1

Cost of goods sold 3325.1 3282.6

Gross profit 3659.1 3479.5

Selling and administrative expenses 2585.7 2513.9

Non- recurring charges 244.6 70.5

Income from operations 828.8 895.1

Interest expenses 118.8 895.1

Other income(expenses) (173.3) 6.9

Income before tax 536.7 782.5

Income tax expenses 198.4 279.9

Net Income 338.3 502.6

Required: Compute the ratios for R.Kelly for 2018 and 2017 and discuss your findings.

Answer 1

		2018	2017
	Net sales	6984.2	6762.1
	Cost of goods sold	3325.1	3282.6
	Gross profit	3659.1	3479.5
	Selling & administrative expenses	2585.7	2513.9
	Non-recurring charges	244.6	70.5
	Income operations	828.8	895.1
	Interest expenses	118.8	119.5
	Other income(expenses)	-173.3	6.9
	Income before tax	536.7	782.5
	Income tax expenses	198.4	279.9
	Tax rate computed as IT expenses/Income before tax	36.97%	35.77%
	Net income	338.3	502.6
	Npte:
	The interest expense for 2017 is wrong. It has been re-worked from
	net income.
1]	Gross profit ratio [Gross profit/Net sales]	52.39%	51.46%
2]	Operating profit ratio = Operating profit[excluding non recurring charges/Net sales]	15.37%	14.28%
3]	TIE = Operating profit[before non recurring charges/Interest expense}	19.71	20.45
4]	Income before tax [excluding non charges and other income expenses]	954.6	846.1
	Tax at 36.97%/35.77%	352.9	302.6
	Net income [normal operations]	601.7	543.5
	Net profit margin [Net income/Net sales]	8.62%	8.04%
5]	FINDINGS:
	The firm has improved its profitability at all stages--GP/OP/NP-- in 2018.
	The TIE is marginally lower. But for this, the peformance in 2018 has
	shown a marginal improvement over 2017.