In: Accounting
Common-size and trend percentages for a company’s net sales,
cost of goods sold, and expenses follow:
Common-Size Percentages |
Trend Percentages |
|||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 108.1 | % | 106.5 | % | 100.0 | % |
Cost of goods sold | 57.9 | 54.8 | 51.6 | 115.9 | 112.0 | 100.0 | ||||||
Expenses | 24.1 | 21.9 | 22.4 | 111.9 | 104.8 | 100.0 | ||||||
Required:
a. Calculate the profit percentage for 2015, 2016 and
2017. (Round the final answers to 2 decimal
places.)
|
b. Determine whether the company’s profit
increased, decreased, or remained unchanged during this three-year
period.
Working |
Common-Size Percentages |
|||
2017 |
2016 |
2015 |
||
A |
Net sales |
100% |
100% |
100% |
B |
Cost of goods sold |
57.9% |
54.8% |
51.6% |
C |
Expenses |
24.1% |
21.9% |
22.4% |
D=A - B - C |
Profit Percentage |
18.00% |
23.30% |
26.00% |
The above profit percentage in Requirement ‘a’ shows that percentage of profit is FALLING. But this percentage is percent of Sale of that year.
TO determine whether company’s profit has increased/decreased overtime, we have to go through TREND PERCENTAGE analysis.
It shows that when compared to 2015, 2017’s expenses have increased at higher rate as compared to increase in Net Sales. This suggests that Profits would have decreased because the increase in Net Sales (Revenue) have been less than increases in Expenses.
Hence, the profits have DECREASED during the period of 3 years.