Comprehensive analysis (Learning Objectives 2, 3, 4)

Todd Department Stores’ chief executive officer (CEO) has asked you to compare the company’s profit performance and financial position with the average for the industry. The CEO has given you the company’s income statement and balance sheet, as well as the industry average data for retailers.

Requirements 1. Prepare a common-size income statement and balance sheet for Todd Department Stores. The first column of each statement should present Todd Department Stores’ common-size statement; the second column, the industry averages.
2. For the profitability analysis, compute Todd Department Stores’

(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 Todd Department Stores’ profit performance better or worse than the industry average?
3. For the analysis of financial position, compute Todd Department Stores’

(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 Todd Department Stores’ financial position better or worse than the industry averages?

TODD DEPARTMENT STORES, INC. Income Statement Compared with Industry Average Year Ended December 31, 2006 Net sales Cost of goods sold Gross profit Operating expenses Operating income Other expenses Net income Industry Todd Average $781,000 100.0% 528,000 65.8 253,000 34.2 163,000 19.7 90,000 14.5 5,000 0.4 $ 85,000 14.1% TODD DEPARTMENT STORES, INC. Balance Sheet Compared with Industry Average December 31, 2006 Industry Todd Average Current assets $305,000 70.9% Fixed assets, net 119,000 23.6 Intangible assets, net 4,000 0.8 Other assets 22,000 4.7 Total assets $450,000 100.0% Current liabilities $207,000 48.1% Long-term liabilities. 102,000 16.6 Stockholders' equity 141,000 35.3 Total liabilities and stockholders' equity $450,000 100.0 %