McDonough Products, Inc. Income Statement Compared with Industry Average Year En
ID: 2385897 • Letter: M
Question
McDonough Products, Inc. Income Statement Compared with Industry Average Year Ended December 31, 2010 McDonough IndustryAverage Net sales............................................................................... $ 700,000 100.0% Cost of goods sold.............................................................. 490,000 57.3 Gross profit.......................................................................... 210,000 42.7 Operating expenses ........................................................... 175,000 29.4 Operating income................................................................ 35,000 13.3 Other expenses.................................................................... 7,000 2.5 Net income .......................................................................... $ 28,000 10.8%
McDonough Products, Inc. Balance Sheet Compared with Industry Average December 31, 2010
McDonough Industry
Average Current assets...................................................................... $ 471,200 72.1% Fixed assets, net ................................................................. 114,700 19.0 Intangible assets, net .......................................................... 21,080 4.8 Other assets......................................................................... 13,020 4.1 Total ..................................................................................... 620,000 100.0% Current liabilities ................................................................. 240,560 0.5 Long-term liabilities ............................................................ 135,160 21.0 Stockholders’ equity............................................................ 244,280 31.8 Total ..................................................................................... $ 620,000 100.0% Industry Average Current Ratio 1.53 Industry Average Total Debt to Total Assets 0.68
Requirements 1. Prepare a common-size income statement and balance sheet for McDonough Products. The first column of each statement should present McDonough Products’ common-size statement, and the second column should show the industry averages. 2. For the profitability analysis, compute McDonough 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. Compare these figures with the industry averages. Is McDonough Products’ profit performance better or worse than the average for the industry? 3. For the analysis of financial position, compute McDonough Products’ (a) Current ratio and (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry? McDonough Products, Inc. Income Statement Compared with Industry Average Year Ended December 31, 2010 McDonough Industry
Average Net sales............................................................................... $ 700,000 100.0% Cost of goods sold.............................................................. 490,000 57.3 Gross profit.......................................................................... 210,000 42.7 Operating expenses ........................................................... 175,000 29.4 Operating income................................................................ 35,000 13.3 Other expenses.................................................................... 7,000 2.5 Net income .......................................................................... $ 28,000 10.8%
McDonough Products, Inc. Balance Sheet Compared with Industry Average December 31, 2010
McDonough Industry
Average Current assets...................................................................... $ 471,200 72.1% Fixed assets, net ................................................................. 114,700 19.0 Intangible assets, net .......................................................... 21,080 4.8 Other assets......................................................................... 13,020 4.1 Total ..................................................................................... 620,000 100.0% Current liabilities ................................................................. 240,560 0.5 Long-term liabilities ............................................................ 135,160 21.0 Stockholders’ equity............................................................ 244,280 31.8 Total ..................................................................................... $ 620,000 100.0% Industry Average Current Ratio 1.53 Industry Average Total Debt to Total Assets 0.68
Requirements 1. Prepare a common-size income statement and balance sheet for McDonough Products. The first column of each statement should present McDonough Products’ common-size statement, and the second column should show the industry averages. 2. For the profitability analysis, compute McDonough 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. Compare these figures with the industry averages. Is McDonough Products’ profit performance better or worse than the average for the industry? 3. For the analysis of financial position, compute McDonough Products’ (a) Current ratio and (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry?
Explanation / Answer
1) Income statement
McDonough Industry average
Net sales 700,000 700,000
Cost of goods sold 490,000 401,100
Gross profit 210,000 298,900
Operating expenses 175,000 205,800
Operating income 35,000 93,100
Other expenses 7,000 17,500
Net income 28,000 75,600
Balance sheet
McDonough Industry average
Current assets 471,200 447,020
Fixed assets 114,700 117,800
Intangible assets 21,080 29,760
Other assets 13,020 25,420
Total 620,000 620,000
Current liabilitties 240,560 292,170
long term liabilitties 135,160 129,430
stockholders equity 244,280 198,400
total 620,000 620,000
2)
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The company is performing bad in all the parameters when compares to industry averages
3)
The company has better current ratio and better debt ratio as compared to industry avergaes
Happy to help
McDonough Industry average
Gross profit to sales 30 43 Operating income to net sales 5 13 Net income to net sales 4
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