Question

Using the following balance sheet, prepare and analyze the common size balance sheet:

Assets                                                                   Liabilities and stockholders’ equity

Current assets Current liabilities             

Cash 4 Accounts payable 28

Short term investments 9 Current portion of long term debt 12

Accounts receivable 32 Total current liabilities 40

Inventory 41

Prepaid expenses 2 Long term liabilities

Deferred taxes, current 7 Long term debt    48

Total current assets 95 Total liabilities 88

Long term assets Stockholders equity

Property & equipment 53 Common stock and paid in capital 51

Goodwill 12 Retained earnings 30

Long term investments 8

Other assets 1                          Total stockholders’ equity    81

Total assets 169                         Total liabilities and equity 169

Analyze the common size income statements below for 3T Company:

2015                       2014

Net sales                                                                                            100%                     100%

COGS                                                                                                 89%                        87%

Gross margin                                                                                     11%                        13%

Selling, general and administrative expenses 7%                          9%

Restructuring, asset impairments and other charges 0%                          9%

Income / (loss) from operations 4%                          (5%)

Interest expense (1%)                       (2%)

Income / (loss) before taxes 3%                          (7%)

Provision for / (benefits from) income taxes 1%                          0%

Income/(loss) after taxes 2%                          (7%)

Discontinued operations, net 6%                          1%

Net income (loss) 8%                          (6%)

Answer 1

Ans

common size balance sheet

Particulars	($ ) as of 2015	(%ge ) as of (2015)
Current assets
Cash	$4	2.37%
Short term investments	$9	5.33%
Accounts receivable	$32	18.93%
Inventory	$41	24.26%
Prepaid expenses	$2	1.18%
Deferred taxes(current)	$7	4.14%
Total current assets	$95	56.21%
Total fixed assets	$74	43.79%
Total Assets	$169	100%
Current liabilities
Accounts payable	$28	16.57%
Current portion of long term debt	$12	7.10%
Total current liabilities	$40	23.67%
Long-term debt	$48	28.40%
Total liabilities	$88	52.07%
Shareholders’ equity	$81	47.93%
Total liabilities and equity	$169	100%

analyze the common size balance sheet

From the table above, we can deduce that cash represents 2.37% of the total assets while inventory represents 24.26% of the total assets. In the liabilities section, we can deduce that accounts payable represent 16.57%, long-term debt 28.40%, and shareholder’s equity 47.93% of the total liabilities and stockholder’s equity.

ans

Analyze the common size income statements

By looking at this income statement, we can see that in 2015, the COGS of that the company is increase by 2% in comparison to 2014 due to this gross margin is decline in 2015 by 2 %. The company also pays interest to the shareholders, which is 1% of the total revenue for the year. The net operating income or earnings after interest and taxes for 2015 represent 2% of the total revenues, and it shows the health of the business’s core operating areas.