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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?
- 3.7 Alpha company purchased 30% of the voting common stocks of Beta company on January 1 and paid $500000 for the investments. Beta company reported
$100000 of earnings for the year and pain $40000 in cash dividends. Calculate investment income and the balance sheet investment account for alpha company under the cost method and under the equity method.
- Discuss the four items that are included in a company’s comprehensive income.
- Explain what can be found on a statement of stockholder’s equity.
- Why is the bottom line figure, net income, not necessarily a good indicator of a firm’s financial success?
- 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 |
- 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 |
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