Which areas require further analysis and investigation

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Reference no: EM1314647

Analysis of financial statement using horizontal analysis.

Common-size statement analysis

A common-size income statement for Creek Enterprises' 2005 operations follows. Using the firm's 2006 income statement presented in Problem 2-12, develop the 2006 common-size income statement and compare it to the 2005 statement. Which areas require further analysis and investigation?

Creek Enterprises Common-Size Income Statement for the Year Ended December 31, 2005
Sales revenue ($35,000,000)	100.0%
Less: Cost of goods sold	65.9
Gross profits	34.1%
Less: Operating expenses
Selling expense	12.7%
General and administrative expenses	6.3
Lease expense	0.6

Creek Enterprises Common-Size Income Statement for the Year Ended December 31, 2005
Depreciation expense	3.6
Total operating expense	23.2
Operating profits	10.9%
Less: Interest expense	1.5
Net profits before taxes	9.4%
Less: Taxes (rate = 40%)	3.8
Net profits after taxes	5.6%
Less: Preferred stock dividends	0.1
Earnings available for common stockholders	5.5%

Reference no: EM1314647

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