CREEK ENTERPRISES, INC. Income Statement Year Ending December 21, 2015 SALES REV
ID: 2711685 • Letter: C
Question
CREEK ENTERPRISES, INC.
Income Statement Year Ending December 21, 2015
SALES REVENUE $ 30,000,000
LESS: COGS 21,000,000
GROSS PROFIT $ 9,000,000
LESS: OPERATING EXPENSES
SELLING EXPENSE $ 3,000,000
GENERAL & ADMIN. EXPENSE 1,800
LEASE EXPENSE 200,000
DEPRECIATION EXPENSE 1,000,000
TOTAL OPERATING EXPENSE $ 6,000,000
OPERATING PROFITS $ 3,000,000
LESS:INTEREST EXPENSE: 1,000,000
NET PROFIT BEFORE TAXES $ 2,000,000
LESS:TAXES(RATE = 40%) 800,000
NET PROFIT AFTER TAXES $ 1,200,000
LESS: PREFERRED STOCKHLDR
DIVIDEND 100,000,00
EARNINGS AVAILABLE FOR
COMMON STOCKHOLDERS $1,100,000
Common-size statement analysis A common-size income statement for Creek Enterprises’
2014 operations follows. Using the firm’s 2015 income statement, develop the 2015 common-size income statement and compare it with the 2014 statement. Which areas require further analysis and investigation?
CREEK, INC. COMMON-SIZE INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014
SALES REVENUE ($35,000,000) 100%
LESS: COGS 65.9
GROSS PROFITS 34.1%
LESS: OPERATING EXPENSES
SELLING EXPENSE 12.7%
GENERAL & ADMIN EXPENSE 6.3
LEASE EXPENSE 0.6
DEPRECIATION EXPENSE 3.6
TOTAL OPERATING EXPENSE 23.2
OPERATION PROFITS 109%
INTEREST EXPENSE 1.5
NET PROFIT BEFORE TAXES 9.4%
LESS:TAXES(RATE = 40%) 3.8
NET PROFIT AFTER TAXES 5.6%
LESS; PREFERRED STOCKHLDR DIVIDENDS 0.1
EARNINGS AVAIL. FOR COMMON STOCKHLDRS 5.5%
Explanation / Answer
Preparation of Common-size income statement for the year ended December 31,2015.We have,
Area witch require further analysis and investigation.
(1) Gross profit.Because it is reduced by 4.1 % from previous year.
(2) Operating profit.Beacause it is reduced by 0.9 % from previous year.
(3) Net profit after tax.Beacause it is reduced by 2.8 % from previous year.
(4) EARNINGS AVAIL. FOR COMMON STOCKHLDRS.Beacause it is reduced by 1.9% from previous year.
Particulars 2014 2015 Difference SALES REVENUE 100 % 100 % 0 LESS: COGS 65.9 % 21,000,000/30,000,000*100 70 % + 0.1 GROSS PROFITS 34.1 % 9,000,000/30,000,000*100 30 % - 4.1 LESS: OPERATING EXPENSES SELLING EXPENSE 12.7 % 3,000,000 / 30,000,000*100 10 % - 2.7 % GENERAL & ADMIN EXPENSE 6.3 1,800 / 30,000,000*100 0.006 + 6.3 LEASE EXPENSE 0.6 200,000 / 30,000,000*100 0.6 0 DEPRECIATION EXPENSE 3.6 1,000,000 / 30,000,000*100 3.3 + 0.3 TOTAL OPERATING EXPENSE 23.2 6,000,000 / 30,000,000*100 20.0 % + 3.2 OPERATION PROFITS 10.9 % 3,000,000 / 30,000,000*100 10 % - 0.9 INTEREST EXPENSE 1.5 1,000,000/30,000,000*100 3.3% + 1.8 NET PROFIT BEFORE TAXES 9.4% 2,000,000 / 30,000,000*100 6.6 % - 2.8 LESS:TAXES(RATE = 40%) 3.8 800,000 / 30,000,000*100 2.6 % + 1.2 NET PROFIT AFTER TAXES 5.6% 1,200,000 / 30,000,000*100 4.0 % - 1.6 LESS; PREFERRED STOCKHLDR DIVIDENDS 0.1 1,000,000 / 30,000,000*100 3.3 % + 3.2 EARNINGS AVAIL. FOR COMMON STOCKHLDRS 5.5% 1,100,000 / 30,000,000*100 3.6 % - 1.9