2–16 Common-size statement analysis A common-size income statement for Creek Enterprises’ 2002 operations follows. Using the firm’s 2003 income statement presented in Problem 2–15, develop the 2003 common-size income statement and compare it to the 2002 statement. Which areas require further analysis and investigation?

Creek Enterprises Common-size Income Statement for the Year Ended December 31, 2002 Sales revenue ($35,000,000) Less: Cost of goods sold Gross profits 100.0% 65.9 34.1% Less: Operating expenses Selling expense 12.7% General and administrative expenses 6.3 Lease expense Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes: 0.6 3.6 23.2 10.9% 1.5 9.4% Less: Taxes (rate=40%) Net profits after taxes 3.8 5.6% Less: Preferred stock dividends Earnings available for common stockholders 0.1 5.5%