P3-19 Common-size statement analysis A common-size income statement for Creek Enterprises 2018 operations follows. Using the firm's 2019 income statement presented in Problem 3-16, develop the 2019 common-size income statement and compare it with the 2018 statement. Which areas require further analysis and investigation? Creek Enterprises Common-Size Income Statement for the Year Ended December 31, 2018 100.0% 65.9 34.1% Sales revenue ($35,000,000) Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General and administrative expenses Lease expense Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders 12.7% 6.3 0.6 3.6 23.2% 10.9% 1.5 9.4% 3.8 5.6% 0.1 5.5% P3-16 Debt analysis Springfield Bank is evaluating Creek Enterprises, which has reques a $4,000,000 loan, to assess the firm's financial leverage and financial risk. On th basis of the debt ratios for Creek, along with the industry average and Creeks fmancial statements (following), evaluate and recommend appropriate action on loan request. Creek Enterprises Income Statement for the Year Ended December 31, 2019 $30,000,000 21,000,000 $ 9,000,000 Sales revenue Less: Cost of goods sold Gross profits Less: Operating expenses Selling expense General and administrative expenses Lease expense Depreciation expense Total operating expense Operating profits Less: Interest expense Net profits before taxes Less: Taxes (rate = 40%) Net profits after taxes Less: Preferred stock dividends Earnings available for common stockholders $ 3,000,000 1,800,000 200,000 1,000,000 $ 6,000,000 $ 3,000,000 1,000,000 $ 2,000,000 800,000 $ 1,200,000 100,0000 $ 1,100,000 Industry averages 0.51 7.30 Debt ratio Times interest earned ratio Fixed-payment coverage ratio 1.85 Creek Enterprises Balance Sheet December 31, 2019 Assets Liabilities and Stockholders' Equity Cash $ 1,000,000 Accounts payable $ 8,000,000 Marketable securities 3,000,000 Notes payable 8,000,000 Accounts receivable 12,000,000 Accruals 500,000 Inventories 7,500,000 Total current liabilities $16,500,000 Total current assets $23,500,000 Long-term debt includes Land and buildings $11,000,000 financial leases) $20,000,000 Machinery and equipment 20,500,000 Preferred stock (25,000 Furniture and fixtures 8,000,000 shares, 54 dividend) $ 2,500,000 Gross fixed assets (at cost" $39,500,000 Common stock (1 million Less: Accumulated depreciation 13,000,000 shares at $5 par) 5,000,000 Net fixed assets $26,500,000 Paid-in capital in excess Total assets $50,000,000 of par value 4,000,000 Retained earnings 2,000,000 Total stockholders' equity $13,500,000 Total liabilities and stockholders' equity S50,000,000 The firm has de financial lease requiring annual brinning of year payments of $200,000. Three years of the lease have yet to run Required annual principal payments are $800,000