Question

Red Hen Baking Company

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

Exhibit 1 Red Hen Baking Company Income Statement 2007 January-June ulv December 557,839 107,355 238,222 anuary June Total 942,361 189,642 435,178 18,719 72,363 53,905 Sales Cost of Goods Sold Payroll 515,362 96,141 231,663 9,486 82,287 196,956 9 9,528 Insurance Depreciation Interest Vehicles Delivery Utilities 28,443 26,953 43,920 26,953 26,953 2,359 15,417 17,906 11,198 30,147 14,555 12,472 12,680 27,027 27,284 19,315 40,595 11616 20,402 20,193 411 138 Net Income -16,451 67,549 51,098 39,635

Answer 1

Common Size Analysis of Income Statement Represents the Values of all the Particulars in terms of Net Sales.

	2006						2007
	January - June	In % Terms	July - December	In % Terms	Total	In % Terms	January - June	In % Terms
Sales	384522	100.00	557839	100.00	942361	100.00	515362	100.00
Cost of Goods Sold	82287	21.40	107355	19.24	189642	20.12	96141	18.66
Payroll	196956	51.22	238222	42.70	435178	46.18	231663	44.95
Rent	9191	2.39	9528	1.71	18719	1.99	9486	1.84
Insurance	28443	7.40	43920	7.87	72363	7.68	34345	6.66
Depreciation	26953	7.01	26952	4.83	53905	5.72	26952	5.23
Interest	3688	0.96	2998	0.54	6686	0.71	2359	0.46
Vehicles	12472	3.24	14555	2.61	27027	2.87	15417	2.99
Delivery	12680	3.30	14604	2.62	27284	2.90	17906	3.47
Utilities	7699	2.00	11616	2.08	19315	2.05	11198	2.17
Other	20193	5.25	20402	3.66	40595	4.31	30147	5.85
Tax	411	0.11	138	0.02	549	0.06	113	0.02
Net Income	-16451	-4.28	67549	12.11	51098	5.42	39635	7.69

Financial Strengths -

1.Cost of Goods sold is stable.

2. Interest is decreasing which means company is paying its debts.

3. All expenses other than Payroll are stable.

Financial Weakness

1. Loss in the first half year is mainly because of high payroll cost which is stablized later.