Common-size and trend percentages for a company’s net sales, cost of goods sold, and expenses follow:...

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.)

	Profit Percentage
2015		%
2016		%
2017		%

b. Determine whether the company’s profit increased, decreased, or remained unchanged during this three-year period.

Solutions

Expert Solution

All working forms part of the answer
Requirement ‘a’: Profit percentage using common size data

Working		Common-Size Percentages
Working		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%

Requirement ‘b’:

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.

ekkarill92 answered 1 year ago

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