Question

Todd Department​ Stores' chief executive officer​ (CEO) has asked you to compare the​ company's profit performance and financial position with the average for the industry. The CEO has given you the​ company's income statement and balance​ sheet, as well as the industry average data for retailers.

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​(Click the icon to view the income​ statement.)

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​(Click the icon to view the balance​ sheet.)Read the requirements

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.Requirement 1. Prepare a​ common-size income statement and balance sheet for

Todd Department Stores. The first column of each statement should present Todd Department​ Stores' common-size​ statement, while the second column should present the industry averages.​ (Round your answers to two decimal​ places, X.XX.)

Start with preparing a​ common-size income statement.

Todd Department Stores, Inc.
Common-Size Income Statement Compared to Industry Average
For the Year Ended December 31
	Todd		Industry
	(%)		Average
Sales revenues		%	100.0	%
Less: Cost of goods sold		%	65.9	%
Gross profit		%	34.1	%
Less: Operating expenses		%	19.8	%
Operating income		%	14.3	%
Less: Interest expense		%	0.4	%
Income before income taxes		%	13.9	%
Less: Income tax expense		%	0.4	%
Net income		%	13.5	%

DATA TABLE

Todd Department Stores, Inc.

Income Statement Compared with Industry Average

For the Year Ended December 31

(amounts in thousands)

Todd

Industry Average

Sales revenues

$782,000

100.0

%

Less: Cost of goods sold

526,286

65.9

%

Gross profit

$255,714

34.1

%

Less: Operating expenses

164,220

19.8

%

Operating income

$91,494

14.3

%

Less: Interest expense

1,173

0.4

%

Income before income taxes

$90,321

13.9

%

Less: Income tax expense

5,083

0.4

%

Net income

$85,238

13.5

%

DATA TABLE

Todd Department Stores, Inc.
Balance Sheet Compared with Industry Average
As of December 31
(amounts in thousands)
	Todd	Industry Average
Assets
Current assets	$312,340	71.0	%
Fixed assets, net	117,760	23.7	%
Intangible assets, net	5,980	0.8	%
Other assets	23,920	4.5	%
Total assets	$460,000	100.0	%
Liabilities
Current liabilities	$213,440	48.0	%
Long-term liabilities	104,880	16.5	%
Total liabilities	$318,320	64.5	%
Stockholders' equity
Total common stockholders' equity	$141,680	35.5	%
Total liabilities and equity	$460,000	100.0	%

REQUIREMENT

1.

Prepare a​ common-size income statement and balance sheet forTodd

Department Stores. The first column of each statement should present Todd

Department​ Stores' common-size​ statement, while the second column should present the industry averages.

2.

For the profitability​ analysis, compute Todd

Department​ Stores' (a) ratio of gross profit to net​ sales, (b) ratio of operating income to net​ sales, and​ (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Todd

Department​ Stores' profit performance better or worse than the industry​average?

3.

For the analysis of financial​ position, computeTodd

Department​ Stores' (a) ratio of current assets to total assets and​ (b) ratio of​ stockholders' equity to total assets. Compare these ratios with the industry averages. Is Todd

Department​ Stores' financial position better or worse than the industry​ averages?

Answer 1

• All working form part of the answer
• Explanations are given where required.
• Amounts are in “$”
• Requirement 1: Income Statement and Balance Sheet

Todd Department Stores, Inc.
Common-Size Income Statement Compared to Industry Average
For the Year Ended December 31
	Todd		Industry
	Amount ($)	%	Average (%)
Sales revenues	782000	100.0%	100
Less: Cost of goods sold	526286	67.3%	65.9
Gross profit	255714	32.7%	34.1
Less: Operating expenses	164220	21.0%	19.8
Operating income	91494	11.7%	14.3
Less: Interest expense	1173	0.2%	0.4
Income before income taxes	90321	11.6%	13.9
Less: Income tax expense	5083	0.7%	0.4
Net income	85238	10.9%	13.5

Todd Department Stores, Inc.
Balance Sheet Compared with Industry Average
As of December 31
(amounts in thousands)
	Todd
Assets	Amount ($)	%	Industry Average %
Current assets	312340	67.9%	71
Fixed assets, net	117760	25.6%	23.7
Intangible assets, net	5980	1.3%	0.8
Other assets	23920	5.2%	4.5
Total assets	460000	100.0%	100
Liabilities
Current liabilities	213440	46.4%	48
Long-term liabilities	104880	22.8%	16.5
Total liabilities	318320	69.2%	64.5
Stockholders' equity
Total common stockholders' equity	141680	30.8%	35.5
Total liabilities and equity	460000	100.0%	100

• Requirement 2: Ratios and comparison with Industry’s Average

		Numerator $	Denominator $	Ratio	Comment
a.	Gross Profit to Net Sales Ratio	Gross Profits	Net Sales
	Todd	255714	782000	32.7%	Gross profit are lesser than Industry's average
	Industry	34.1	100	34.1%
b.	Operating Income to Net Sales	Operating Income	Net sales
	Todd	91494	782000	11.7%	Operating Income is not as per Industry's average
	Industry	14.3	100	14.3%
c.	Net Income to Net Sales	Net Income	Net Sales
	Todd	85238	782000	10.9%	Net Income is below the Industry's average
	Industry	13.5	100	13.5%

• Requirement 3: Ratios and comparison with Industry’s Average

		Numerator $	Denominator $	Ratio	Comment
a.	Current Assets to Total Assets	Current Assets	Total Assets
	Todd	312340	460000	67.9%	Current Assets are below Industry's average
	Industry	71	100	71.0%
b.	Stockholders' Equity to Total Assets	Equity	Total Assets
	Todd	141680	460000	30.8%	Stockholders' Equity is not as per Industry's average
	Industry	35.5	100	35.5%