1. Fluctuation, Inc., recorded the following profit figures in 2010-2012.
2012 2011 2010
Net sales $30,500 $25,600 $22,900
Costs and expenses:
Cost of products sold $12,600 $10,300 $ 8,350
Selling 7,875 5,025 4,580
General 2,950 2,325 2,150
Research and development 4,100 3,190 2,840
$27,525 $20,840 $17,920
Operating income $ 2,975 $ 4,760 $ 4,980
Other income (expense) 525 (300) (400)
Earnings before tax $ 3,500 $ 4,460 $ 4,580
Income tax 1,480 1,990 2,100
Net income $ 2,020 $ 2,470 $ 2,480
Required:
a. Compute the net profit margin for 2010-2012.
b. Compute the gross profit margin for 2010-2012.
c. Describe the trend in profitability and pinpoint its causes.
2. The following are extracted from the financial statements of Frem, Inc., for 2012, 2011, and 2010.
2012 2011 2010
Net sales $233,000 $204,000
Cost of sales (124,000) (110,000)
Selling and administrative expenses (95,000) (81,500)
Other income:
Interest (3,700) (3,050)
Other 100 1,175
Earnings before tax and extraordinary credit $ 10,400 $ 10,625
Provision for income tax (4,800) (4,740)
Earnings before extraordinary credit 5,600 5,885
Extraordinary credit - 1,510
$ 5,600 $ 7,395
Total assets $202,000 $173,000 $161,000
Long-term debt 24,600 17,400 15,200
Common equity 123,000 116,800 112,800
Preferred stock 4,000 4,000 4,000
Preferred dividends 280 280 280
Required:
a. Compute the following ratios for 2012 and 2011.
1. Net profit margin
2. Total asset turnover
3. Return on assets
4. Return on investment
5. Return on total equity
6. Return on common equity
7. Gross profit margin
b. Discuss the trend in profitability and identify specific causes for the trend.
3. Friendly Bookstore has experienced rapid growth since its formation in 2008. Following is selected data from
its annual report.
2012 2011 2010 2009 2008
Sales $1,500,000 $1,260,000 $970,000 $840,000 $600,000
Cost of Sales 1,008,000 971,000 598,000 515,000 360,000
Net Profit 60,000 53,000 46,000 39,000 30,000
Total Assets 1,489,000 1,100,000 897,000 768,000 545,000
Number of Books Sold 97,500 85,703 73,192 63,200 45,187
Required:
a. Perform a horizontal, common-size analysis of the data given, using 2008 as the base year.
b. Comment on the results.
4. Condensed comparative financial statements for Woodstock Manufacturing Company appear below.
Balance Sheet
April 30
(in thousands of dollars)
2012 2011 2010
Assets:
Current assets $ 1,700 $1,120 $1,544
Plant and equipment (net) 8,110 7,830 5,404
Other assets 1,004 695 772
Total assets $10,814 $9,645 $7,720
Liabilities and Stockholders' Equity:
Current liabilities $ 950 $ 880 $ 772
Long-term liabilities 2,023 1,591 1,544
Capital stock ($10 par) 4,600 4,600 3,000
Paid-in capital in excess of par 770 770 386
Retained earnings 2,471 1,804 2,018
Total liabilities and stockholders' equity $10,814 $9,645 $7,720
Income Statement
For the Year Ended April 30
(in thousands of dollars)
2012 2011 2010
Net sales $38,610 $32,175 $25,740
Cost of sales 25,100 19,950 15,400
Gross profit $13,510 $12,225 $10,340
Selling expenses 7,700 6,565 5,148
Administrative expenses 4,270 4,175 3,861
Total operating expenses $11,970 $10,740 $ 9,009
Operating income $ 1,540 $ 1,485 $ 1,331
Interest expense 115 95 100
Net income before tax $ 1,425 $ 1,390 $ 1,231
Income taxes 655 645 541
Net income $ 770 $ 745 $ 690
Required:
Perform a horizontal, common-size analysis of the balance sheet items, using 2010 as the base year. Also
include a horizontal analysis of sales and net income. Comment on significant trends and relationships
revealed by the computations.
