Describe why trend in gross margins is a better indicator

Reference no: EM13258556

The following table contains data obtained from annual reportsof Stride-Rite, a shoe manufacturer and retailer:

Years ended December 31 (in $thousands)

	2006	2007	2008
Sales	$515,728	$539,413	$572,696
COGS	($328,172)	($348,587)	($362,108)
Gross profit	$187,556	$190,826	$210,588

LIFO Liquidation	$3,379	$1,733	0
(net of taxes)

Required:

a. Compute the gross margin percentage for each year2006-2008.

b. Stride-Rite disclosed the effect of LIFO liquidationsnet of income tax. Assuming a tax rate of 35%, recomputeStride-Rite's gross margin for the years 2005-2007 afterremoving the effect of LIFO liquidation. (Hint: This meansthat COGS presented in template is determined after reflecting theeffect of before-tax LIFO liquidation)

c. Explain why the trend in gross margins shown in part bis a better indicator of Stride-Rite's performance than thereported gross margins.

Reference no: EM13258556

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