Question

Income Statement compared with Industry Average For the year ended 30th June 2016 Peters Industry Average 100.0% Net sales $972,500 Cost of sales 653.520 65.8 34.2 Gross profit Selling and general expenses Other expenses Profit 318,980 201,308 5.835 19.7 04 Peters Retailers Pty Statement of financial Position compared with Industry Average as at 30h June 2016 Peters Industry Average $406,800 70.9% 151,200 23.6 0.8 Current assets Property, plant and equipment, net Intangible assets, net Other assets 10,800 31200 4.7 S600.000 10000 278,400 134,400 187,200 35.3 S600.000 100,0% Total assets Current liabilities 48.1 16.6 Non-current liabilities Shareholders' equity Total liabilities and shareholders' equity Prepare a common-size income statement and statement of financial position for Peters. The first column of each statement should present Peters' common-size statement and the second column the industry averages. 1. 2. Compare Peters' gross profit percentage and rate of return on net sales with the industry averages. Is Peters' performance better or worse than the industry average? 3. Compare Peters' current ratio and debt to equity ratios with the industry averages. Is Peters' performance better or worse than the industry average?

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Answer 1

1)				Peter's
				Income	Common	Industry
	Particulars			Statement	size	Average
					Income
					Statement
	Net sales			$ 972,500.00	100.0%	100.0%
	Cost of sales			$ 653,520.00	67.2%	65.8%
	Gross profit			$ 318,980.00	32.8%	34.2%
	Selling and gen. exp			$ 201,308.00	20.7%	19.7%
	Other expense			$      5,835.00	0.6%	0.4%
	Profit			$ 111,837.00	11.5%	14.1%

To calculate common size statement percentages, just divide each and every item of the statement by the amount of net sales.

				Peter's		Industry's
Current Assets				$ 406,800.00	67.8%	70.9%
Property, Plant and Equipment				$ 151,200.00	25.2%	23.6%
Intangible assets, net				$    10,800.00	1.8%	0.8%
Other assets				$    31,200.00	5.2%	4.7%
Total Assets				$ 600,000.00	100%	100%
Current Liabilities				$ 278,400.00	46.4%	48.1%
Non-current Liabilities				$ 134,400.00	22.4%	16.6%
Shareholder's equity				$ 187,200.00	31.2%	35.3%
Total Liabilities and Shareholder's equity				$ 600,000.00	100%	100%

Divide all assets with the total of asset and divide all liabilities with the total of liabilities and shareholder's equity

2)	Peter's gross profit percentage and percentage of net return
	of sales are 32.8% and 11.5%, whereas same of the industry
	are 34.2% and 14.1%.
	We can clearly see that Peter's performance is below the industry's
	average.

3)	Particulars		Basis	Peter's	Industry's	Remarks
	Current Ratio		Current Assets	67.8%	70.9%
			Current Liabilities	46.4%	48.1%
			=	1.46	1.47	Peter is performing below average
	Debt to Equity		Current + Non-current Liabilities	46.4%+22.4%	48.1%+16.6%
			Shareholder's equity	31.20%	35.30%
			=	2.21	1.83	Peter's company's position is much riskier