Interpreting Income Statements: Ratio Analysis
Use the following comparative income statements to evaluate Clarkson Brewery’s performance for the year ended December 31, 1999 and 1998.
|
1999 |
1998 |
|
|
Net sales |
$405,000 |
$378,000 |
|
Operating expenses: |
||
|
Cost of goods sold |
163,250 |
154,400 |
|
Selling expense |
81,000 |
48,360 |
|
General and administrative expense |
121,500 |
102,650 |
|
Total operating expenses |
365,750 |
305,410 |
|
Operating income |
39,250 |
72,590 |
|
Other income: |
34,000 |
— |
|
Gain on sale of property |
73,250 |
72,590 |
|
Income before tax |
21,975 |
21,777 |
|
Income tax expense |
51,275 |
50,813 |
|
Income before extraordinary item |
— |
(25,000) |
|
Extraordinary loss net of tax |
$ 51,275 |
$ 25,813 |
Required
a. Calculate a horizontal and vertical analysis, using the data from Clarkson Brewery.
b. In which year was the company more successful?
c. What underlying business reasons might have resulted in differences in the company’s gains and losses each year?