FIN 333 Some Measures of Profitability and an EVA calculation
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Some Measures of Profitability and an EVA Calculation
The J.M. Smucker reports STATEMENTS OF CONSOLIDATED INCOME
Year Ended April 30,
2018
2017
2016
(Dollars in millions)
Net Sales
7,357.1 7,392.3 7,811.2 Cost of products sold
4,521.0 4,557.0 4,843.4 Gross Profit
2,836.1 2,835.3 2,967.8 Selling, distribution, and administrative expenses
1,370.8 1,390.7 1,510.3 Amortization
206.8 207.3 208.4 Goodwill impairment charge
145.0 Other intangible assets impairment charges
31.9 133.2 Other special project costs
45.4 76.9 135.9 Other operating expense (income) -- net
0.1 (4.3)
(32.1)
Operating Income
1,036.1 1,031.5 1,145.3 Interest expense -- net
(174.1)
(163.1)
(171.1)
Other income (expense) -- net
(1.0)
10.0 3.7 Income Before Income Taxes
861.0 878.4 977.9 Income tax expense (benefit)
(477.6)
286.1 289.2 Net Income
1,338.6 592.3 688.7 In addition, J.M. Smucker reports an effective tax rate in fiscal year 2018 equal to 30.4 percent. The effective tax rate for fiscal year 2017 is equal to 32.6 percent, and the effective tax rate in fiscal year 2016 is equal to 29.6 percent. Also, J.M. Smucker reports total assets on their balance sheet at the end of fiscal year 2018 to equal $15,301.2 million. At the end of fiscal year 2017 total assets on their balance
sheet equals $15,639.7 million. At the end of fiscal year 2016 total assets on their balance sheet equals $15,984.1 million. For the fiscal years ended April 30, 2018, 2017, 2016 the J.M. Smucker Capital Structure looks like this:
2018
2017
2016
(Dollars in millions)
Long-term debt
4,688.0 4,445.5 5,146.0 Shareholders' equity
7,891.1 6,850.2 7,008.5 Total Invested Capital
12,579.1 11,295.7 12,154.5 Questions and answers follow on the next page.
1.
What is the operating margin equal to for the fiscal year ended April 30, 2018?
Operating margin
=
EBIT
Sales
=
1,036.1
7,357.1
=
14.1%
2.
What is the profit margin equal to for the fiscal year ended April 30, 2018?
Profit margin
=
Net Income
Sales
=
1,338.6
7,357.1
=
18.2%
3.
What is the return on total assets (ROA) equal to for the fiscal year ended April 30, 2018?
ROA
=
Net Income
Total assets
=
1,338.6
15,301.2
=
8.7 %
4.
What is the return on invested capital (ROIC) equal to for the fiscal year ended April 30, 2018?
ROIC
=
EBIT
(
1
−
T
)
Debt
+
Equity
=
1,036.1
(
1
−
.304
)
4,688.0
+
7,891.1
=
5.7%
5.
What is the Basic earning power (BEP) ratio equal to for the fiscal year ended April 30, 2018?
BEP
=
EBIT
Total assets
=
1,036.1
15,301.2
=
6.8%
6.
What is the total assets turnover ratio equal to for the fiscal year ended April 30, 2018?
Total assetturnover
=
Sales
Total assets
=
7,357.1
15,301.2
=
0.481
×
¿
7.
What is the equity multiplier equal to for the fiscal year ended April 30, 2018?
Equity multiplier
=
Total assets
Equity
=
15,301.2
7,891.1
=
1.939
×
¿
8.
What is return on equity (ROE) equal to for the fiscal year ended April 30, 2018?
ROE
=
Net Income
Equity
=
(
Profit margin
) (
Total assetturnover
) (
Equity multiplier
)
=
17 %
9.
Assuming that the after-tax cost of capital for Smucker’s is equal to six percent, what is the economic value added (EVA) equal to for the fiscal year ended April 30, 2018?
EVA
=
EBIT
(
1
−
T
)
−
(
Totalinvested capital
) (
Aftertax costof capital
)
EVA
=
$
1036.1
million
(
1
−
.304
)
−
(
$
12,579.1
million
) (
0.06
)
=−
$
33.62
million
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2017
2018
2019
2020
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4.75B
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2016
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2017
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$
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1,000
100
Net sales
$
22,800
$
18,500
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10,800
7,200
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$
12,000
$
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$
1,180
$
840
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5,800
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Research
1,030
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Miscellaneous
840
540
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$
8,850
$
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$
3,150
$
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1,040
740
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$
2,110
$
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For Years Ended December 31, 2017 and 2018
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2017
Gross sales
$
22,800
$
17,850
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900
100
Net sales
$
21,900
$
17,750
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11,050
7,700
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10,850
$
10,050
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$
1,080
$
790
Selling and administrative
5,050
3,900
Research
930
690
Miscellaneous
740
490
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$
7,800
$
5,870
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$
3,050
$
4,180
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940
690
Income before taxes
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2,110
$
3,490
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844
1,396
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21,200
$
16,650
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800
100
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$
20,400
$
16,550
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11,450
8,400
Gross profit
$
8,950
$
8,150
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$
920
$
710
Selling and administrative
3,850
3,100
Research
770
610
Miscellaneous
580
410
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$
6,120
$
4,830
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$
2,830
$
3,320
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780
610
Income before taxes
$
2,050
$
2,710
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820
1,084
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1,230
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459,716
$
352,180
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244,400
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276,749
223,282
156,416
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182,967
128,898
87,984
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48,601
32,261
Administrative expenses
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30,992
20,285
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106,654
79,593
52,546
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49,305
35,438
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10,108
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62,119
$
39,197
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28,244
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December 31, 2019, 2018, and 2017
2019
2018
2017
Assets
Current assets
$
58,718
$
39,300
$
52,535
Long-term investments
0
500
4,280
Plant assets, net
109,047
99,561
58,646
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167,765
$
139,361
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115,461
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For Years Ended December 31, 2017 and 2018
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2017
Gross sales
$
21,600
$
16,950
Sales returns and allowances
900
100
Net sales
$
20,700
$
16,850
Cost of merchandise (goods) sold
11,350
8,300
Gross profit
$
9,350
$
8,550
Operating expenses:
Depreciation
$
960
$
730
Selling and administrative
4,150
3,300
Research
810
630
Miscellaneous
620
430
Total operating expenses
$
6,540
$
5,090
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$
2,810
$
3,460
Interest expense
820
630
Income before taxes
$
1,990
$
2,830
Provision for taxes
796
1,132
Net income
$
1,194
$
1,698
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December 31, 2017 and 2018
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2017
Assets
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$
13,300
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Cost of products sold
Gross margin
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2016
$34,954 $30, 040
14,274
13, 395
$20, 680
$16, 645
2017
2016
2015
Required:
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$26, 091
13, 655
$12, 436
59.16 %
55.41 %
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For Years Ended December 31, 2017 and 2018
2018
2017
Gross sales
$
22,400
$
17,550
Sales returns and allowances
800
100
Net sales
$
21,600
$
17,450
Cost of merchandise (goods) sold
11,150
7,900
Gross profit
$
10,450
$
9,550
Operating expenses:
Depreciation
$
1,040
$
770
Selling and administrative
4,750
3,700
Research
890
670
Miscellaneous
700
470
Total operating expenses
$
7,380
$
5,610
Income before interest and taxes
$
3,070
$
3,940
Interest expense
900
670
Income before taxes
$
2,170
$
3,270
Provision for taxes
868
1,308
Net income
$
1,302
$
1,962
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December 31, 2017 and 2018
2018
2017
Assets
Current assets:
Cash
$
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($ thousands)
2021
2020
2019
2018
2017
2016
2015
Sales
$ 2,318
$ 2,030
$ 1,847
$ 1,693
$ 1,580
$ 1,469
$ 1,204
Cost of goods sold
1,667
1,356
1,167
1,021
949
887
707
Gross profit
651
674
680
672
631
582
497
Operating expenses
497
389
356
263
228
225
187
Net income
$ 154
$ 285
$ 324
$ 409
$ 403
$ 357
$ 310
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Comparative Year-End Balance Sheets
December 31, 2021–2015
($ thousands)
2021
2020
2019
2018
2017
2016
2015
Assets
Cash
$ 89
$ 118
$ 122
$ 125
$ 130
$ 128
$ 132
Accounts receivable, net
640
672
608
467
411
389
275
Merchandise inventory
2,315
1,685
1,472
1,241
1,114
946
686
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Comparative Income Statement
For Years Ended December 31, 2017 and 2018
2018
2017
Gross sales
$
22,400
$
17,550
Sales returns and allowances
800
100
Net sales
$
21,600
$
17,450
Cost of merchandise (goods) sold
11,150
7,900
Gross profit
$
10,450
$
9,550
Operating expenses:
Depreciation
$
1,040
$
770
Selling and administrative
4,750
3,700
Research
890
670
Miscellaneous
700
470
Total operating expenses
$
7,380
$
5,610
Income before interest and taxes
$
3,070
$
3,940
Interest expense
900
670
Income before taxes
$
2,170
$
3,270
Provision for taxes
868
1,308
Net income
$
1,302
$
1,962
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Comparative Balance Sheet
December 31, 2017 and 2018
2018
2017
Assets
Current assets:
Cash
$
11,800…
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Comparative Income Statement
For Years Ended December 31, 2017 and 2018
2018
2017
Gross sales
$
22,600
$
17,700
Sales returns and allowances
1,000
100
Net sales
$
21,600
$
17,600
Cost of merchandise (goods) sold
11,100
7,800
Gross profit
$
10,500
$
9,800
Operating expenses:
Depreciation
$
1,060
$
780
Selling and administrative
4,900
3,800
Research
910
680
Miscellaneous
720
480
Total operating expenses
$
7,590
$
5,740
Income before interest and taxes
$
2,910
$
4,060
Interest expense
920
680
Income before taxes
$
1,990
$
3,380
Provision for taxes
796
1,352
Net income
$
1,194
$
2,028
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Comparative Balance Sheet
December 31, 2017 and 2018
2018
2017
Assets
Current assets:
Cash
$…
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Sales, net
P 700,000
15,000
400,000
Net credit sales
Cost of goods sold
Cost of goods manufactured
Net credit purchases
410,000
150,000
225,000
90,000
212,500
20,000
Raw materials used
Net income
Total operating expenses
Depreciation
Net income
90,000
The balance sheet figures as of December 31, 2017 and 2018 are as follows:
December 31
2017
2018
P12,500
P 25,000
Cash
17,500
28,750
Marketable securities
10,000
20,000
Accounts receivable, net
Inventories:
25,000
35,000
Finished goods
Work in process
22,500
15,000
3,750
P 150,000
37,500
17,500
10,000
Raw materials
Prepaid expenses
Total current assets
2,500
P95,000
37,500
Investments
117,500
187,500
Plant, property and equipment, net
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Net sales
Cost of products sold
Gross margin
2017
2016
2015
Required:
a. Calculate the gross profit ratio for each of the past three years. (Round your answers to 2
decimal places.)
(In millions)
2016
2017
2015
$34,894
$30,411
$26,113
14,318
13,376
13,767
$20,576 $17,035 $12,346
Cost of goods sold
Gross profit
58.94 %
%
%
b. Assume that Campbell's net sales for the first four months of 2018 totaled $12.79 billion.
Calculate an estimated cost of goods sold and gross profit for the four months, using the gross
profit ratio for 2017. (Round Intermediate calculations to 2 decimal places. Enter your answers
in millions rounded to nearest whole number (1.e., 5,000,000 should be entered as 5).)
million
million
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Current Attempt in Progress
The comparative statements of Pharoah Company are presented here.
Pharoah Company
Income Statements
For the Years Ended December 31
Net sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Income from operations
Other expenses and losses
Interest expense
Income before income taxes
Income tax expense
Net income
2025
$2,104,400
1,167,000
937,400
570.000
367,400
25.080
342,320
102,696
$239,624
2024
$1,960,000
1,146.840
813,160
546,060
267.100
22,800
244.300
73,290
$171.010
Assets
Current assets
Cash
Debt investments (short-term)
Accounts receivable (net)
Inventory
Total current assets
Plant assets (net)
Total assets
Pharoah Company
Balance Sheets
December 31
Liabilities and Stockholders' Equity.
Current liabilities
Accounts payable
Income taxes payable
Total current liabilities
Bonds payable
Total liabilities
Stockholders' equity
2025
$68,514
84,360
134,292
143,640
430,806
739,860
$1,170,666
$182,400
49,590
231,990
250,800
482,790
2024…
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Selected comparative financial statements of Haroun Company follow.
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Comparative Income Statements
For Years Ended December 31, 2021–2015
($ thousands) 2021 2020 2019 2018 2017 2016 2015
Sales $ 2,260 $ 1,979 $ 1,801 $ 1,651 $ 1,540 $ 1,432 $ 1,174
Cost of goods sold 1,625 1,322 1,137 995 925 865 689
Gross profit 635 657 664 656 615 567 485
Operating expenses 483 378 347 256 222 219 182
Net income $ 152 $ 279 $ 317 $ 400 $ 393 $ 348 $ 303
HAROUN COMPANY
Comparative Year-End Balance Sheets
December 31, 2021–2015
($ thousands) 2021 2020 2019 2018 2017 2016 2015
Assets
Cash $ 111 $ 147 $ 153 $ 156 $ 162 $ 160 $ 165
Accounts receivable, net 800 840 760 583 514 487 343
Merchandise inventory 2,893 2,106 1,840 1,551 1,393 1,183 858
Other current assets 74 67 41 74 62 63 33
Long-term investments 0 0 0 228 228 228 228
Plant assets, net 3,541 3,527 3,086 1,740 1,799 1,599 1,373
Total assets $ 7,419 $ 6,687 $ 5,880 $ 4,332 $ 4,158 $ 3,720 $ 3,000
Liabilities and…
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Use the following tables to answer the question:
LOGIC COMPANY Income Statement For years ended December 31, 2016 and 2017
(values in $) 2016 2017
Gross sales 19,800 15,600
Sales returns and allowances 900 100
Net sales 18,900 15,500
COGS 11,800 8,800
Gross profit 7,100 6,700
Depreciation 780 640
Selling and administrative expenses 2,800 2,400
Research 630 540
Miscellaneous 440 340
Total operating expenses 4,650 3,920
Income before interest and taxes 2,450 2,780
Interest expense 640 540
Income before taxes 1,810 2,240
Provision for taxes 724 896
LOGIC COMPANY Balance Sheet For years ended December 31, 2016 and 2017
(values in $) 2016 2017
Current assets 12,300 9,400
Accounts receivable 16,900 12,900
Merchandise inventory 8,900 14,400
Prepaid expenses 24,400 10,400
Total current assets 62,500 47,100
Building (net) 14,900 11,400
Land 13,900 9,400
Total plant and equipment 28,800 20,800
Total assets 91,300 67,900
Accounts payable 13,400 7,400
Salaries payable 7,500 5,400
Total current…
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Selected comparative financial statements of Haroun Company follow.
HAROUN COMPANY
Comparative Income Statements
For Years Ended December 31, 2021–2015
($ thousands)
2021
2020
2019
2018
2017
2016
2015
Sales
$ 2,272
$ 1,989
$ 1,810
$ 1,659
$ 1,548
$ 1,440
$ 1,180
Cost of goods sold
1,634
1,329
1,143
1,001
930
870
693
Gross profit
638
660
667
658
618
570
487
Operating expenses
486
380
349
257
223
220
183
Net income
$ 152
$ 280
$ 318
$ 401
$ 395
$ 350
$ 304
HAROUN COMPANY
Comparative Year-End Balance Sheets
December 31, 2021–2015
($ thousands)
2021
2020
2019
2018
2017
2016
2015
Assets
Cash
$ 85
$ 113
$ 117
$ 120
$ 124
$ 123
$ 127
Accounts receivable, net
613
644
583
447
394
373
263
Merchandise inventory
2,218
1,615
1,411
1,189
1,068
907
658
Other current assets
57
51
32
56
48
48
25
Long-term investments
0
0
0
175
175
175
175
Plant assets, net
2,715
2,704
2,365
1,334
1,379
1,226
1,052
Total assets
$ 5,688
$ 5,127
$ 4,508
$ 3,321…
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An extract from an outdoor
equipment company's 2021 financial
statements follows: Income
statement Year ended December 31,
2021 Year ended December 31, 2020
Sales 27,764 26,982 Net income
1,132 (322) What was the company's
profitability ratio for 2021?
O A. 13.7%
OB. 8.8%
O C. 4.08%
O D. 7.9%
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Forecasting an Income StatementAutoZone Inc. reports the following income statements.
Consolidated Statement of Income ($ in Thousands)
12 Months EndedAug. 27, 2016
Net sales
$10,635,676
Cost of sales, including warehouse and delivery expenses
5,026,940
Gross profit
5,608,736
Operating, selling, general and administrative expenses
3,548,341
Operating profit
2,060,395
Interest expense, net
147,681
Income before income taxes
1,912,714
Income tax expense
671,707
Net income
$1,241,007
Forecast AutoZone's 2017 income statement assuming the following income statement relations ($ in thousands). All percentages, (other than sales growth and provision for income taxes) are based on percent of net sales.
Net sales growth
6%
Cost of sales, including warehouse and delivery expenses
47.3%
Operating, selling, general and administrative expenses
33.4%
Interest expense, net
$145,000
Income tax expense (% pretax income)
35%
Round your…
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Comparative income statements and balance sheets for F&N are shown below ($ millions):
Year 2
Year 1
Income Statement
$19,889
6,204
Net sales.
$20,092
6,044
Cost of goods
Gross profit.
Selling, general, and administrative expense
Depreciation and amortization expense
Interest expense (revenue)
14,048
7,893
803
(308)
13,685
9,221
773
292
3,399
1,222
Income before tax
5,660
1,691
Income tax expense.
Net income
$ 3,969
$ 2,177
Outstanding shares
3,491
3,481
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Comparative Income Statements
Consider the following income statement data from the Mono Company:
Sales revenue
Cost of goods sold
Selling expenses
Administrative expenses
Income tax expense
2019 2018
$600,000 $450,000
336,000 279,000
105,000
99,000
60,000 50,000
4,000
3,000
Prepare a contparative income statement, showing increases, and decreases in dollars and in percentages.
Note: Round "Percent Change" answers to one decimal place (ex: 0.2345 = 23.5%).
Sales Revenue
Cost of Goods Sold
MONO COMPANY
Comparative Income Statements
♦
Selling Expenses
Administrative Expenses
Total
Income before Income Taxes
◆
→
$
$
2019
0 $
0
0
0
0
oooo
0
0 $
2018
Increase
(Decrease)
0 $
0
0
0
0
0
0
0
0 $
0
0
0
0
0
0
0
0
0
Percent
Change
0%
0%
0%
0%
0%
0%
0%
0%
0 %
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WINDSOR, INC.Income StatementFor the Year Ended December 31, 2023
Net Sales
$340
Cost of Goods Sold
238
Gross Profit
102
Operating Expenses
40
Net Income
$ 62
Using vertical analysis, what percentage is assigned to gross profit?
100%
70.0%
42.9%
30.0%
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Computing and Interpreting Financial Statement Ratios
Following are selected ratios of Norfolk Southern for 2018 and 2017.
Return on Assets (ROA) Component
2018
2017
Profitability (Net income/Sales)
25.3%
53.2%
Productivity (Sales/Average assets)
0.338
0.319
a. Was the company profitable in 2018?Answer
b. Was the company more profitable in 2018 or 2017?Answer
c. Is the change in productivity a positive or negative development?Answer
d. Compute the company’s ROA for 2018 and for 2017.
Note: Round answers to one decimal places (example: 10.4%).
ROA
2018
Answer
2017
Answer
e. From the information provided, which of the following best explains the change in ROA during 2018?
Answer
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THE COCA-COLA COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share data)
Year Ended December 31,
Net Operating Revenues
Cost of goods sold
Gross Profit
Selling, general and administrative expenses
2019
2018
2017
37,266 S
34,300 S
36,212
14,619
13,067
13,721
22,647
21,233
22,491
12,103
11,002
12,834
458
1,079
1,902
Other operating charges
10,086
9,152
7,755
Operating Income
Interest income
563
689
679
946
950
853
Interest expense
Equity income (loss)-net
1,049
1,008
1,072
34
(1,674)
(1,763)
Other income (loss)- net
10,786
8,225
6,890
Income Before Income Taxes
1,801
1,749
5,607
Income taxes
8,985
6,476
1,283
Consolidated Net Income
42
35
Less: Net income (loss) attributable to noncontrolling interests
Net Income Attributable to Shareowners of The Coca-Cola Company
65
8,920 S
6,434 S
1,248
2.09 S
1.51 $
0.29
Basic Net Income Per Share
2.07 S
1.50 $
0.29
Diluted Net Income Per Shard
4,276
4,259
4,272
Average Shares Outstanding- Basic
38
40
52
Effect of…
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In its year-end financial statements, Pillar Inc. reported the following (in millions):
2016
2015
Sales
$38,152
$46,541
Cost of goods sold
$28,309
$33,211
As a percentage of sales, did Pillar's gross profit increase or decrease during the year?
Select one:
a. Gross profit decreased from 28.6% to 25.8%
b. Gross profit increased from 71.4% to 74.2%
c. Gross profit decreased from 74.2% to 71.4%
d. There is not enough information to answer the question.
e. Gross profit increased from 25.8% to 28.6%
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