Homework answers / question archive / Pace University - FIN 742 DATE: 02-08-2017 HOME WORK 3 1)What is the difference between a multiple step and a single step format of the earnings statement? Which format is the most useful for the analysis?     How is a common size income statement created?         Explain how a company could have a decreasing gross profit margin but an increasing operating profit margin?     What is an example of an industry that would need to spend a minimum amount on advertising to be competitive? On research and development?     3

Pace University - FIN 742 DATE: 02-08-2017 HOME WORK 3 1)What is the difference between a multiple step and a single step format of the earnings statement? Which format is the most useful for the analysis?     How is a common size income statement created?         Explain how a company could have a decreasing gross profit margin but an increasing operating profit margin?     What is an example of an industry that would need to spend a minimum amount on advertising to be competitive? On research and development?     3

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7. Explain what can be found on a statement of stockholder’s equity.

 

 

 

8. Why is the bottom line figure, net income, not necessarily a good indicator of a firm’s financial success?

 

 

 

 

9. Using the excerpt from the Moon Company’s annual report, calculate any profit measures deemed necessary and discuss the implications of the profitability of the company.

 

Moon Company Income Statements for the years ended December 31, 2016, 2015 and 2014

 

	2016	2015	2014
Net Sales	$220000	$196000	$150000
Cost of goods sold	169000	147000	108000
Gross Profit	$51000	$49000	$42000
Operating expenses	26000	25000	20000
Operating profit	$25000	$24000	$22000
Income taxes	7800	7500	7000
Net Income	$17200	$16500	$15000

 

 

10. 3.15. Writing Skills Problem

Income statements are presented for the Elf Corporation for the year ending December 31, 2016, 2015, and 2014.

 

Elf Corp Income Statement for the years Ending December 31,2016, 2015, and 2014

 

(In millions)	2016	2015	2014
Net Sales	$700	$650	$550
Cost of goods sold	350	325	275
Gross Profit	350	325	275
Operating expenses
Administrative	100	100	100
Advertising         and marketing	50	75	75
Operating profit	$200	$150	$100
Interest Expense	70	50	30
Earnings        before tax	$130	$100	$70
Tax             Expense (50%)	65	50	35
Net Income	$65	$50	$35