Express the following comparative income statements in common- size percents and assess whether or not this company’s situation has improved in the most recent year.
5 points)
MULAN CORPORATION
Comparative Income Statements
For Years Ended December 31, 2009 and 2008
2009 2008
Sales . . . . . . . . . . . . . . . . . . $ 657,386 $ 488,400
Cost of goods sold . . . . . . . . 427,301 286,202
Gross profit . . . . . . . . . . . . . 230,085 202,198
Operating expenses . . . . . . . 138,051 94,750
Net income . . . . . . . . . . . . . $ 92,034 $ 107,448
Respond Below: 2009 2008
Sales
Cost of goods sold
Gross Profit
Operating expenses
Net income
123
To express the comparative income statements in common-size percentages, you need to calculate each item as a percentage of sales for both 2009 and 2008.
First, calculate the common-size percentage for each item:
For 2009:
- Sales: $657,386 / $657,386 = 100%
- Cost of goods sold: $427,301 / $657,386 = 65%
- Gross profit: $230,085 / $657,386 = 35%
- Operating expenses: $138,051 / $657,386 = 21%
- Net income: $92,034 / $657,386 = 14%
For 2008:
- Sales: $488,400 / $488,400 = 100%
- Cost of goods sold: $286,202 / $488,400 = 59%
- Gross profit: $202,198 / $488,400 = 41%
- Operating expenses: $94,750 / $488,400 = 19%
- Net income: $107,448 / $488,400 = 22%
Now, we can assess whether or not this company's situation has improved in the most recent year by comparing the common-size percentages for each item between 2009 and 2008:
- Sales: Increased from 100% in 2008 to 100% in 2009 (no change).
- Cost of goods sold: Increased from 59% in 2008 to 65% in 2009 (worse).
- Gross profit: Decreased from 41% in 2008 to 35% in 2009 (worse).
- Operating expenses: Increased from 19% in 2008 to 21% in 2009 (worse).
- Net income: Decreased from 22% in 2008 to 14% in 2009 (worse).
Based on the common-size percentages, it appears that Mulan Corporation's situation has worsened in the most recent year (2009) compared to the previous year (2008).
To express the comparative income statements in common-size percents, we need to divide each item by sales and multiply by 100.
Sales in 2009:
Sales = $657,386
% of Sales = (Sales/Total Sales) * 100 = (657,386/657,386) * 100 = 100%
Sales in 2008:
Sales = $488,400
% of Sales = (Sales/Total Sales) * 100 = (488,400/657,386) * 100 ≈ 74.34%
Cost of goods sold in 2009:
Cost of goods sold = $427,301
% of Sales = (Cost of goods sold/Total Sales) * 100 = (427,301/657,386) * 100 ≈ 65.06%
Cost of goods sold in 2008:
Cost of goods sold = $286,202
% of Sales = (Cost of goods sold/Total Sales) * 100 = (286,202/488,400) * 100 ≈ 58.63%
Gross Profit in 2009:
Gross Profit = $230,085
% of Sales = (Gross Profit/Total Sales) * 100 = (230,085/657,386) * 100 ≈ 35.02%
Gross Profit in 2008:
Gross Profit = $202,198
% of Sales = (Gross Profit/Total Sales) * 100 = (202,198/488,400) * 100 ≈ 41.42%
Operating expenses in 2009:
Operating expenses = $138,051
% of Sales = (Operating expenses/Total Sales) * 100 = (138,051/657,386) * 100 ≈ 21.00%
Operating expenses in 2008:
Operating expenses = $94,750
% of Sales = (Operating expenses/Total Sales) * 100 = (94,750/488,400) * 100 ≈ 19.39%
Net income in 2009:
Net income = $92,034
% of Sales = (Net income/Total Sales) * 100 = (92,034/657,386) * 100 ≈ 14.00%
Net income in 2008:
Net income = $107,448
% of Sales = (Net income/Total Sales) * 100 = (107,448/ 488,400) * 100 ≈ 22.00%
To assess whether or not the company's situation has improved in the most recent year, we need to compare the common-size percentages.
In 2009, the company's sales increased to 100% compared to 74.34% in 2008. This shows an improvement in the company's sales performance.
The cost of goods sold as a percentage of sales decreased from 65.06% in 2009 to 58.63% in 2008, which indicates a better control over the cost of goods sold.
The gross profit as a percentage of sales decreased from 35.02% in 2009 to 41.42% in 2008, showing a decline in profitability.
Operating expenses as a percentage of sales increased from 21.00% in 2009 to 19.39% in 2008, indicating a higher level of expenses relative to sales.
Net income as a percentage of sales decreased from 14.00% in 2009 to 22.00% in 2008, suggesting a decline in profitability.
Based on these comparisons, the company's situation did not improve in the most recent year as profitability and control over costs declined, and expenses increased relative to sales.