Apple a Day, Inc., and Unforgettable Edibles, Inc., are fold catering businesses that operate in the same metropolitan area. Their customers include Fortune 500 companies, regional firms, and individuals. The two firms reported similar profit margins for the current year, and both base bonuses for mangers on the achievement of a target profit margin and return on equity. Each firm has submitted a loan request to you, a loan officer for City National Bank. They have provided you with the following information:

1. Perform a vertical analysis and prepare a common-size income statement for each firm. Compute profit margin and return on equity.
2. Discuss these results, the bonus plan for managements, and loan considerations. Identify the company that is the better loan risk.

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Unforgettable 7 Cost of goods sold Operating expenses Operating income Gain on sale of real estate Interest expense $118,923 2 Income before income taxcs Income taxes Net income Average stockholders' equity cxPENsc