Coast Hardware and Fashion Center are sole proprietorships of similar size. Also, both businesses earn similar amounts of revenue, incur similar amounts of operat- ing expenses, and earn similar net incomes. However, Coast has a higher cost of goods sold, while Fashion Center has higher interest expense. Indicate which of these companies has the higher (a) gross profit rate and (b) operating income. In each case, explain the reasons for your answer.

Coast Hardware and Fashion Center are sole proprietorships of similar size. Also, both businesses earn similar amounts of revenue, incur similar amounts of operat- ing expenses, and earn similar net incomes. However, Coast has a higher cost of goods sold, while Fashion Center has higher interest expense. Indicate which of these companies has the higher (a) gross profit rate and (b) operating income. In each case, explain the reasons for your answer.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Assuming that the fiscal health of the Health Company is not optimal, explain how Return on Equity (ROE) can help justify paying dividends to shareholders and increasing the company's debts. If Liver Corporation has a lower price/earnings (P/E) ratio than another firm engaged in the same business, what reasons might explain these differences? Describe at least three problems encountered in the analysis of financial indicators. Explain how the DuPont equation can help in analyzing company results.
Please refer to the sample and paraphrase the revenue and gross profit. Changing the company name to Newmont Corporation. Please write a close word count to the sample. Thanks!
Explain how manufacturers can know (a) how many products to make, and (b) how many products to sell in order to earn a profit.
If Liver Corporation has a lower price/earnings (P/E) ratio than another firm engaged in the same business, what reasons might explain these differences?
In determining if two operating segments may be combined into one, which of the following factors should be considered? a. similarities regarding profit margins b. whether the nature of the products and services is similar c. whether there is a similar amount of intracompany sales d. whether there is a similar number of employees
What are the advantages and disadvantages of The Insurance Company allocating corporate costs to the regions?
The relationship between financial leverage and profitability Pelican Paper, Inc., and Timberland Forest, Inc., are rivals in the manufacture of craft papers. Some financial statement values for each company follow. Use them in a ratio analysis that compares the firms' financial leverage and profitability. a. Calculate the following debt and coverage ratios for the two companies. Discuss their financial risk and ability to cover the costs in relation to each other. (1) Debt ratio (2) Times interest earned ratio b. Calculate the following profitability ratios for the two companies. Discuss their profitability relative to each other. (1) Operating profit margin (2) Net profit margin (3) Return on total assets (4) Return on common equity c. In what way has the larger debt of Timberland Forest made it more profitable than Pelican Paper? What are the risks that Timberland's investors undertake when they choose to purchase its stock instead of Pelican's? a. The debt ratio for Pelican is %.…
Financial analysis and forecasting are based on assumptions and estimates. Comparing the income of two companies may include different company assumptions in reporting their financial information. Therefore, their income may be different even though they have the same products in equal volume. Discuss the various financial/accounting assumptions that could explain the difference in income for two companies’ income with the same products and equal volume.
Which of the following conditions would not indicate that two business segments should be classified as a single operating segment? They have similar amounts of intersegment revenues or expenses. They have a similar distribution of products. They have similar production processes. They have similar products or services. Other:________________________________
Genevieve Co, and Odessa Co. sell the same product in a competitive industry. Thus the selling price of the product for each company is the same. Other data about the two companies are as follows: *
B) The C.E.O. explains that the company is facing severe competition in the market place and has heard about the use of Cost Volume Profit Analysis to assist in the decision making process. He is however unsure about the analysis and how it can be of use in the business, and is seeking your help to determine: 1) What is C.V.P. Analysis and how it can be used to improve the profitability of the business. The C.E.O. then asks your advice on two sets of actions currently being considered by the company to increase its Net Income. The company currently has sales of $ 350,000, representing 5,000 units. Its variable costs are $ 250,000 and the fixed costs are $ 60,000. The alternatives being considered are: a) Increase Selling Price by 10% b) Reduce variable cost to 70% of Sales. You are asked to: 1) Compute the Net Income that will be earned under each alternative. 2) Advise the CEO as to which alternative would best suit the company's requirements.
7,8,9,10