# Question

Refer to Exhibit 1.10, which contains income statement information that is based on the financial report of Capcion, an Austrian paper and packaging manufacturer. Capcion reports all amounts in thousands of euros (€). Answer the following questions that pertain to the information in this exhibit.
a. What is Capcion’s largest expense on its income statement, and what is the amount?
b. What is Capcion’s second largest expense on its income statement, and what is the amount?
c. What is the ratio of Capcion’s gross margin to sales (this ratio is the gross margin percentage)?
d. What amount does Capcion report as operating profit for 2013? What amount does it report as profit before tax? What explains the difference between the two?
e. What is Capcion’s effective tax rate for the year? (The effective tax rate is the ratio of income tax expense to profit before tax.)
f. Did Capcion generate profit for the year, or incur a loss? How much?

Year ended
(amounts in thousands of euros [€]) Dec. 31, 2013
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . € 1,736,959.2
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,331,292.1)
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,667.1
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,746.7
Selling and distribution expenses . . . . . . . . . . . . . . . . . . . . . (172,033.4)
Administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . (74,204.0)
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . (758.2)
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,418.2
Financial expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,082.9)
Financial income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,534.1
Share of profit (loss) of associated companies . . . . . . . . . . . 377.9
Other income (expenses)—net . . . . . . . . . . . . . . . . . . . . . . . (4,383.4)
Profit before tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,863.9
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (54,289.9)
Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . € 116,574.0

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