Chapter 12, Problem 38BP

Common-size financial statements and profitability ratios (Learning Objective 2) 20-25 mm

Chelsey’s Auto Sales asked for your help in comparing the company's Profit performance and financial position with the average for the auto sales industry. The owner has given you the company’s income statement and balance sheet as well as the industry average data for retailers of used autos.

Chelsey’s Auto Sales Income Statememt Compared with Industry Average Year Ended December 31,2018
			CHELSEY’S	INDUSTRY AVERAGE
		Net Sales	$521,400	100.0%
		Cost of Goods Sold	323,600	63.2%
		Gross Profit	197,800	36.8%
		Operating Expenses	151,200	27.5%
		Operating Income	46,600	9.3%
		Other Expenses	3,400	0.5%
		Net Income	$43,200	8.8%

Chelsey’s Auto Sales Balance Sheet Compared with Industry Average December 31,2018
			CHELSEY’S	INDUSTRY AVERAGE
		Current Assets	$211,400	71.2%
		Fixed Assets, Net	68,100	24.3%
		Intangible Assets, Net	6,400	0.7%
		Other Assets	11,400	3.8%
		Total Assets	$297,300	100.0%
		Current Liabilities	$117,800	48.4%
		Long-Term Liabilities	79,100	16.1%
		Stockholder’s Equity	100,400	35.5%
		Total Liabilities and Stockholder’s Equity	$297,300	100.0%

Requirements

1. 1. Prepare a two column common-size income statement and a two-column common-size balance sheet for Chelsey’s Auto Sales. The first column of each statement should present Chelsey’s Auto Sales' common-sire statement and the second column should show the industry averages.
2. 2. For the profitability analysis examine Chelsey's Auto Sales' (a) ratio of gross profit to net sales, (b) ratio of operating income to net sales and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Chelsey’s Auto Sales profit performance better or worse than the industry average?
3. 3. To analyze financial posit on examine Chelsey’s Auto Sales' (a) ratio of current assets to total assets and (b) ratio of stockholders' equity to total assets Compare these ratios with the industry averages. Is Chelsey's Auto Sales' financial position better or worse than the industry average?