Question

CREEK ENTERPRISES, INC.

Income Statement Year Ending December 21, 2015

SALES REVENUE $ 30,000,000

LESS: COGS 21,000,000

GROSS PROFIT $ 9,000,000

LESS: OPERATING EXPENSES

SELLING EXPENSE $ 3,000,000

GENERAL & ADMIN. EXPENSE 1,800

LEASE EXPENSE 200,000

DEPRECIATION EXPENSE 1,000,000

TOTAL OPERATING EXPENSE $ 6,000,000

OPERATING PROFITS $ 3,000,000

LESS:INTEREST EXPENSE: 1,000,000

NET PROFIT BEFORE TAXES $ 2,000,000

LESS:TAXES(RATE = 40%) 800,000

NET PROFIT AFTER TAXES $ 1,200,000

LESS: PREFERRED STOCKHLDR

DIVIDEND 100,000,00

EARNINGS AVAILABLE FOR

COMMON STOCKHOLDERS $1,100,000

Common-size statement analysis A common-size income statement for Creek Enterprises’
2014 operations follows. Using the firm’s 2015 income statement, develop the 2015 common-size income statement and compare it with the 2014 statement. Which areas require further analysis and investigation?

CREEK, INC. COMMON-SIZE INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014

SALES REVENUE ($35,000,000) 100%

LESS: COGS 65.9

GROSS PROFITS 34.1%

LESS: OPERATING EXPENSES

SELLING EXPENSE 12.7%

GENERAL & ADMIN EXPENSE 6.3

LEASE EXPENSE 0.6

DEPRECIATION EXPENSE 3.6

TOTAL OPERATING EXPENSE 23.2

OPERATION PROFITS 109%

INTEREST EXPENSE 1.5

NET PROFIT BEFORE TAXES 9.4%

LESS:TAXES(RATE = 40%) 3.8

NET PROFIT AFTER TAXES 5.6%

LESS; PREFERRED STOCKHLDR DIVIDENDS 0.1

EARNINGS AVAIL. FOR COMMON STOCKHLDRS 5.5%