Question

Analyze the changes in gross profit margin for all three years. il unee i turee year years. 3.15. Writing Skills Problem Income statements are presented for the Elf Corporation for the years ending December 31, 2016, 2015, and 2014. Elf Corporation Income Statements for the Years Ending December 31, 2016, 2015, and 2014 (in millions) Sales Cost of goods sold Gross profit Operating expenses: 2016 2014 $700 350 $650 325 5350 $325 275 $550 275 Administrative 100 50 $200 70 100 75 $150 50 100 75 5100 30 Advertising and marketing Operating profit Interest expense Earnings before tax Tax expense (50%) Net income $130 $100 70 50 35 5 65 50 535 Required: Write a one-paragraph analysis of Elf Corporation's profit performance for the period To the Student: The focus of this exercise is on analyzing financial data rather than simply describing the numbers and trends. Analysis involves breaking the information into parts tor study, relating the pieces, making comparisons, drawing conclusions, and evaluating cause and effect.

Answer 1

The net income has increased from 2014 to 2016, the reason being that the sale has increased gradually alongwith decrease in advertising and marketing expenses. However, the Interest expense had increased from 2014 to 2016. The net profits were 9.28% in 2016, 7.69% in 2015 and 6.36% in 2014. The reason for higher sales in 2016 could be due to spending more on advertising and marketing during 2014 & 2015 and grabbing hold on more customers and thereby increasing sale in 2016. The increase in sale could also be due to more sale on credit basis thereby funds being stuck in receivables and as a result using debt to procure goods for manufacturing which could ultimately lead to higher interest expense