Chapter 3, Problem 3.19P

Learning Goals 5

P3-19 Common-size statement analysis A common-size income statement for Creek Enterprises’ 2018 operations follows. Using the firm’s 2019 income statement presented in Problem 3-16, develop the 2019 common-size income statement and compare it with the 2018 statement. Which areas require further analysis and investigation?

Creek Enterprises Common-Size Income Statement for the Year Ended December 31, 2018

Sales revenue ($35,000,000)	100.0%
Less: Cost of goods sold	65.9
Gross profits	34.1%
Less: Operating expenses
Selling expense	2.7%
General and administrative expenses	6.3
Lease expense	0.6
Depreciation expense	3.6
Total operating expense	23.2%
Operating profits	10.9%
Less: Interest expense	1.5
Net profits before taxes	9.4%
Less: Taxes (rate = 40 %)	3.8
Net profits after taxes	5.6%
Less: Preferred stock dividends	0.1
Earnings available for common stockholders	5.5%