Question

What does your common size analysis tell you about the financial strengths and weaknesses of this company?

2006(Total) 2007(Jan-Jun) Net Sales Cost of Good Sold Gross Profit 942,361 189,642 752,719 515,362 96,141 419,221 Payroll Rent Expenses Insurance Expenses Depreciation Vehicles Expenses Delivery Expenses Utilities Expenses Other Expenses EBIT 435,178 18,719 72,363 53,905 27,027 27,284 19,315 40,595 58,333 231,663 9,486 34,345 26,953 15,417 17,906 11,198 30,147 42,106 Interest Expenses 6,686 2,359 Income Before Taxes 51,647 39,747 Income Taxes 549 113 Net Income 51,098 39,635

Answer 1

Solution:

Strength of the company :

• Company's gross profit ratio is increased from 79.88% to 81.34%
• Payroll Rent exp, Depreciation and Insurance exp. and interest exp. are comparatively lesser than previous year with respect to sales volume
• EBIT is increased from 6.19% to 8.17% of sales in the current half year of 2007
• Net profit ratio is increased from 5.42% to 7.69% in the current half year of 2007

Weakness of the company: Delivery exp. , utilities expense, and Other expenses are comparatively increase in current half yr as a percentage of sales.

Overall Feedback: Since G.P and N.P ratio is increased in present half yr and also it would be for the rest of the half period thus, it can be said that company is growing as it controlled its expenses and made an increment in sales (if we compare it to the half of last year's sales) and thus, overall made an increment in profit.