1. Block 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.

• 1. create a common-size income statement and balance sheet for Block Department Stores. The first column of each statement should present Block Department Stores' common-size statement, while the second column should present the industry averages.
• 2. For the profitability analysis, compute Block Department Stores' (a) ratio of gross profit to sales, (b) ratio of operating income to sales, and (c) ratio of net income to sales. Compare these figures with the industry averages. Is Block Department Stores' profit performance better or worse than the industry average?
• 3. For the analysis of financial position, compute Block 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 Block Department Stores' financial position better or worse than the industry averages?

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1234 B C Block Department Stores, Inc. Income Statement Compared with Industry Average For the Year Ended December 31 (amounts in thousands) 5 Block Industry Average 6 Sales revenues $ 782,000 100.0% 7 Less: Cost of goods sold 526,286 65.7% 8 Gross profit 255,714 34.3% 9 Less: Operating expenses 164,220 19.5% 10 Operating income $ 91,494 14.8% 11 Less: Interest expense 1,173 0.5% 12 Income before income taxes $ 90,321 14.3% 13 Less: Income tax expense 5,083 0.3% 14 Net income $ 85,238 14.0% 15 1234 B C Block Department Stores, Inc. Income Statement Compared with Industry Average For the Year Ended December 31 (amounts in thousands) 5 Block Industry Average 6 Sales revenues $ 782,000 100.0% 7 Less: Cost of goods sold 526,286 65.7% 8 Gross profit 255,714 34.3% 9 Less: Operating expenses 164,220 19.5% 10 Operating income $ 91,494 14.8% 11 Less: Interest expense 1,173 0.5% 12 Income before income taxes $ 90,321 14.3% 13 Less: Income tax expense 5,083 0.3% 14 Net income $ 85,238 14.0% 15