Question

AP12-1A  

(Common-size analysis and differences in profitability)

Comparative financial statement data for First Ltd. and Supreme Ltd., two competitors, follow:

	First Ltd		Supreme Ltd
	2020	2019	2020	2019
Net Sales	$337,500		$1,950,000
Cost of goods sold	202,500		1,950,000
Operating expense	68,250		468,000
Interest expense	3,375		37,800
Income tax expense	17,400		70,500
Current assets	165,000	$142,500	1,020,000	$780,000
Capital assets(net)	420,000	367,500	1,530,000	1,1,425,000
Current Liabilities	52,500	42,750	225,000	2,400,000
Long-term liabilities	67,500	95,250	630,000	540,000
Share capital	345,000	270,000	1,200,000	1,125,000
Retained earning	120,000	102,000	495,000	300,000

Required

a.  Prepare a common-size analysis of the 2020 statement of income data for First Ltd. and Supreme Ltd.

b.  Calculate the return on assets and the return on shareholders' equity for both companies.

Answer 1

first Hd a) preparation of ancome statement of and supreuse it for 2020. Sexpreme Ltd $1950ooo C1950000) Net sales cost of goods sold I contribution margin o operating escoense 6 Interest expense I profit before tax A) Income tax profit after taa First Ltd $337 500 (202500) $135000 / (68250) (3375). $63375 (17you) $45975 Cu68ooo) C37800) ($505800) (7050o) ($576300). I $386 700 b) calculation of return on assets alote :- there we can cakelode return on total assets Cor) on Querage total assets on the basis of total assets a tots Psic first itd. scepreme Ltd curent assets $165000 $_1020000 15 30 000 capital assets * S 420000 total assets $ 585000 Nef profit १५ऽas ($576300) Refum on assets 198610 c Net profit X10o). Total assets 1 585000 25.50,000 / - 22'6'1 - 1576300 x 100 kausa 75x100 - 31387500

If return on assets on the basis of overage total assets a first ltd supreme Ltd for 2020 - 25,501000 total assets 6585000 $1385500 for 2019 Total assets $5,10,000 $1220 5000 Average assets $ 54750 $7377500 Net psopita $45075 ($576300) Return on querige 8:39 1 - 7.81). assets supremeltd Return on shareholders equity first ltd share capital at $345000 & 12 1000oo Refained earnings $120,000 & 4a5ooo Total equity Bu65000 $1695000 Net profit. su5075 CS576300 ) - Return on equity 9.89 1 - 341 1 $15975xico IsU65000 16 576300 x 100 $1695000