At the end of the fiscal year Zeta Tube performs an analysis comparing current year income statement
Question:
At the end of the fiscal year Zeta Tube performs an analysis comparing current year income statement to prior year income statement.
The income statement comparison for Forklift Material Handling shows the income statement for the current and prior year.
A. In dollars, calculate the operating income (loss) for each year.
B. Calculate the operating income (percentage) for each year.
(Amount in thousands) | Current Year | Prior Year | |
Sales | $ 33,750 | $ 24,750 | |
Cost of goods sold | $ 21,938 | $ 16,830 | |
Gross Profit | $ 11,812 | $ 7,920 | |
Wages | $ 8,775 | $ 6,188 | |
Utilities | $ 675 | $ 250 | |
Repairs | $ 169 | $ 325 | |
Selling | $ 506 | $ 200 | |
Total expenses | $ 10,125 | $ 6,963 | |
Operating income | |||
Operating income % | |||
Total assets (investment base) | $ 4,500 | $ 1,500 | |
Return on investment | |||
Residual income (8% cost of capital) |
C. Zeta Tube has decided to upgrade their equipment in the current year (the difference in total assets from prior year to current year).
Calculate the return on investment for these purchases. Was the decision to invest in additional assets in the company successful? Explain.
D. Zeta Tube determines that an 8% cost of capital is appropriate.
Calculate the residual income for prior and current year. Explain how this compares to your findings in (C).
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw