Required 1. Prepare the Common Size Income Statement for Perez & Serrano Co. 2. Calculate the following
Question:
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%