Required

1. Prepare the Common Size Income Statement for Perez & Serrano Co.

2.  Calculate the following profitability ratios, compare them to the industry, and evaluate the performance of Pérez & Serrano, Inc. using the scale: better, on par, or worse.

a. Gross Profit Ratio 

b. Operating profit margin

C. Net profit margin 

3. If Perez & Serrano Co.'s gross profit ratio is worse than the industry's gross profit ratio. You are the financial analyst for Perez & Serrano Co. and management is asking you for a recommendation to improve that ratio. What would you recommend? why?

 Information

Perez & Serrano Co.

Income Statement for the year ended December 31, 2019

(in thousands of dollars)

net sales $4980

cost of goods sold 2246

Gross profit $2734

Other operating expenses 125

Earnings before interest, taxes and depreciation $2609

Depreciation 200

Earnings before interest and taxes (EBIT) $2406

Interest expenses 315

Earnings Before Taxes (EBT) $2094

Taxes 764

Net Income $1327

Preferred Stock Dividends $60

Net income available for common shares $1267

Common Stock Dividends 395

Addition to retained earnings $872

By shared (common) data

Earnings Per Share (EPS) $6.34

Dividends Per Share (DPS) $1.98

Book Value Per Share (BVPS) $19745

Market value (price) per share $26850

Other financial data of Pérez & Serrano Co.

industry

Times Interest Accrued = (EBIT / Interest Expense) 7.25

Net Profit Margin = (Net Profit/Sales) 18.75%

Operating profit margin = (EBIT/sales) 42.02%

Gross profit margin = (sales - cost of goods sold/sales) 49.16%