Otto?s Auto Sales asked for your help in comparing the company?s profit performance and financial position with the average for the auto sales industry. The owner has given you the company?s income statement and balance sheet as well as the industry average data for retailers of used autos.

Requirements

1. Prepare a two-column common-size income statement and a two-column common- size balance sheet for Otto?s Auto Sales. The first column of each statement should present Otto?s Auto Sales? common-size statement and the second column should show the industry averages.

2. For the profitability analysis, examine Otto?s Auto Sales? (a) ratio of gross profit to net sales, (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Otto?s profit performance better or worse than the industry average?

3. For the analysis of financial position, examine Otto?s Auto Sales? (a) ratio of current assets to total assets, and (b) ratio of stockholders? equity to total assets. Compare these ratios with the industry averages. Is Otto?s Auto Sales? financial position better or worse than the industry average?

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Otto's Auto Sales Income Statement Compared with Industry Average Year Ended December 31, 2018 INDUSTRY OTTO'S AVERAGE $955,100 Net Sales 100.0% 651,400 303,700 Cost of Goods Sold 64.3% Gross Profit 35.7% Operating Expenses Operating Income Other Expenses 217,800 27.3% 85,900 11,500 $74,400 8.4% 1.1% 7.3% Net Income Otto's Auto Sales Balance Sheet Compared with Industry Average December 31, 2018 INDUSTRY OTTO'S AVERAGE Current Assets $516,800 77.2% Fixed Assets, Net 112,300 16.3% Intangible Assets, Net 23,100 2.8% Other Assets 27,900 $680,100 3.7% Total Assets 100.0% $268,600 129,200 282,300 $680,100 Current Liabilities 40.1% Long-Term Liabilities Stockholders' Equity Total Liabilities and Stockholders' Equity 20.3% 39.6% 100.0%