Reference no: EM13582963
A Top managers of O'Hare Products, Inc., have asked for your help in comparing the companys profit performance and financial position with the average for the industry. The accountant has given you the company's income statement and balance sheet and also the following data for the industry. The problem is that O'Hare is in dollars and the Industry Average is in percentages. To complete the analysis you will need to convert O'Hare's dollar amounts to percentages. O'Hare Products, Inc. Income Statement Compared with Industry Average Year Ended December 31, 2012 O'Hare Industry Average Net sales............................................................................... $960,000 100.0%
Cost of goods sold.............................................................. 662,400 57.3% Gross profit.......................................................................... 297,600 42.7%
Operating expenses ........................................................... 220,800 29.4%
Operating income................................................................ 76,800 13.3%
Other expenses.................................................................... 9,600 2.5%
Net income .......................................................................... $67,200 10.8%
O'Hare Products, Inc. Balance Sheet Compared with Industry Average December 31, 2012 O'Hare Industry Average Current assets...................................................................... $292,000 72.1%
Fixed assets, net ................................................................. 72,800 19.0%
Intangible assets, net .......................................................... 14,000 4.8%
Other assets......................................................................... 21,200 4.1%
Total ..................................................................................... 400,000 100.0% Current liabilities................................................................. 188,000 47.2%
Long-term liabilities ............................................................ 84,000 21.0% Stockholders equity............................................................ 128,000 31.8%
Total ..................................................................................... $400,000 100.0%
See red triangle for helpful hints. Requirements
1. Prepare a common-size income statement and balance sheet for OHare Products. The first column of each statement should present OHare Products common-size statement, and the second column should show the industry averages.
2. For the profitability analysis, compare OHare Products (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 with the industry averages. Is OHare Products profit performance better or worse than the average for the industry?
3. For the analysis of financial position, compute OHare Products (a) ratios of current assets and current liabilities to total assets and (b) ratio of stockholders equity to total assets. Compare these ratios with the industry averages. Is OHare Products financial position better or worse than the average for the industry?
Solution
| Requirement #1 |
| O'Hare Products, Inc. |
| Common-Size Income Statement Compared to Industry Average |
| Year Ended December 31, 2012 |
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O'Hare Products |
Industry Average |
| Net sales............................................................ |
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| Cost of goods sold............................................... |
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| Gross profit......................................................... |
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| Operating expenses.............................................. |
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| Operating income................................................. |
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| Other expenses.................................................... |
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| Net income......................................................... |
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| O'Hare Products, Inc. |
| Common-Size Balance Sheet Compared to Industry Average |
| Year Ended December 31, 2012 |
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O'Hare Products |
Industry Average |
| Current assets..................................................... |
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| Fixed assets, net.................................................. |
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| Intangible assets, net............................................. |
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| Other assets....................................................... |
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| Total assets........................................................ |
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| Current liabilities................................................... |
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| Long-term liabilities............................................... |
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| Stockholders' equity.............................................. |
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| Total liabilities and stockholders' equity..................... |
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| Requirement #2 |
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| Requirement #3 |
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