Question

Baresse Corporation: Income Statements for Year Ending December 31

(Millions of Dollars)

	2019	2018
Sales	$11,000	$10,000
Operating costs excluding depreciation	9,360	8,500
Depreciation and amortization	380	360
Earnings before interest and taxes	$1,260	$1,140
Less interest	120	100
Pre-tax income	$1,140	$1,040
Taxes (40%)	$456	$416
Net income available to common shareholders	$684	$624
Common dividends	$220	$200

Baresse Corporation: Balance Sheets as of December 31 (Millions of Dollars)

	2019	2018
Assets
Cash	$550	$500
Short term investments	110	100
Accounts receivable	2,750	2,500
Inventories	1,650	1,500
Total current assets	$5,060	$4,600
Net plant and equipment	3,850	3,500
Total assets	$8,910	$8,100
Liabilities and Equity
Accounts payable	$1,100	$1,000
Accruals	550	500
Notes payable	384	200
Total current liabilities	$2,034	$1,700
Long term debt	1,100	1,000
Total liabilities	$3,134	$2,700
Common stock	4,312	4,400
Retained earnings	1,464	1,000
Total common equity	5,776	5,400
Total liabilities and equity	$8,910	$8,100

1.Construct a common-sized income statement for 2018 and 2019. Comment on any changes you see.

Please show work used to solve in excel! Thank you.

Answer 1

360 3 Sales Operating costs excluding 4 depreciation 5 Depreciation and amortization Earnings before interest and 6 taxes 7 Less interest 8 Pre-tax income 9 Taxes (40%) Net income available to common 10 shareholders 11 Common dividends Normal Income Statement Common Size Income Statement (In %) 2019 2018 2019 2018 11000 10,000 100 100 9,360 8,500 380 1260 1,140 120 100 1,140 1,040 456 684 220 200 416 624

=> The only change is in depreciation and amortization, In 2018 it is 4% of the revenue and In 2019 it reduced to 3%.

=> In common sized income statement, Each item is expressed as percentage of revenue

=> To calculate it in excel, type '=' then click on the revenue amount cell then divided by 11000(in case of 2019)

=> Use the round function to round the amount and cancel the decimal points

=> In the above, The formula used is '=ROUND((B3/11000)*100,0)' in case of 2019 and '=ROUND((C3/10000)*100,0)' in case of 2018

=> After that drag the first cell till the bottom for getting the values at the bottom.