Question

1 Lake Athletics sells two distinct product lines: Apparel and Equipment. 2 The income statement for each product line appears below. LAKE ATHLETICS Income Statement For the Year Ended December 31, 20X1 Apparel Equipment Amount Percent Amount Percent $3,150,000 1,400,000 1,750,000 800,000 $5,550,000 2,720,000 2,830,000 e Net sales o Cost of goods sold 1 Gross profit 2 Operating expenses 3 Operating income 4 Other income 875,000 1,955,000 10,000 1,965,000 491,000 950,000 20,000 970,000 5 Income before tax 6 Income tax expense 241,250 $1,474,750 $728,750 7 Net income 9 Required: 0 1. Use appropriate Excel formulas to perform vertical analysis and complete the "Percent" columns for both product lines above. Express each amount as a percentage of net sales. 2 Note: You should use absolute references in the divisors of all formulas. 3 2. Use the Excel IF function and the completed vertical analysis above to answer each of the questions below: 4

1. Compute and interpret financial ratios that managers use to assess liquidity.
2. Compute and interpret financial ratios that managers use for asset management purposes.
3. Compute and interpret financial ratios that managers use for debt management purposes.

Answer 1

Lake Athletics
Income Statement:
	Apparel		Equipment
	Amount$	Percent	Amount$	Percent
Net Sales	3150000	100%	5550000	100%
COGS	1400000	44.44	2720000	49.01
Gross profit	1750000	55.56	2830000	50.99
Operating exp.	800000	25.40	875000	15.77
Operating income	950000	30.16	1955000	35.23
Other income	20000	0.63	10000	0.18
Income before tax	970000	30.79	1965000	35.41
Income tax exp.'	241250	7.66	491000	8.85
Net Income	728750	23.13	1474000	26.56
Highest Gross Profit % = Apparel with 55.56%
Highest Net Income % = Equipment with 26.56%
To calculation analysis ratios please provide the Balance Sheet figures.