Reference no: EM13215112
Love Bug Used Auto Sales asked for your help in comparing the company's profit performance and financial position with the average for the auto sales industry. The proprietor has given you the company's income statement and balance sheet as well as the industry average data for retailers of used autos.
LOVE BUG USED AUTO SALES
Income Statement Compared with Industry Average
Year Ended December 31, 2009
Love Bug Industry Average
Net Sales $521,000 100.0%
Cost of Goods Sold 331,000 63.1%
Gross Profit 190,000 37.9%
Operating expenses 109,000 27.8%
Operating income 81,000 10.1%
Other expenses 3,000 0.4%
Net income $78,000 9.7%
LOVE BUG USED AUTO SALES
Balance Sheet Compared with Industry Average
December 31, 2009
Love Bug Industry Average
Current assets $230,000 70.9%
Plant assets, net 49,000 23.6%
Intangible assets, net 3,000 0.8%
Other assets 15,000 4.7%
Total assets $297,000 100.0%
Current liabilities $136,000 48.1%
Long-term liabilities 41,000 16.6%
Stockholders' equity 120,000 35.3%
Total liabilities and stockholders'
equity $297,000 100.0%
1. Prepare a two-column, common-size income statement and a two-column common-size balance sheet for Love Bug Used Auto Sales. The first column of each statement should present Love Bug's common-size statement and the second column should show the industry averages.
2. For the profitability analysis, examine Love Bug's (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 average. Is Love Bugs' profit performance better or worse than the industry average?
3. For the analysis of financial position, examine Love Bugs' (a) ratio of current assets to total assets, (b) ratio of stockholders' equity to total assets. Compare these ratios with the industry averages. Is Love Bugs' financial position better or worse than the industry average?
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