ACCT 212 : Course Project 2
Learning Objectives : Preparing common-size statements; analyzing
profitability; making comparisons with the industry
Top managers of McDonough Products, Inc., have asked for your help in comparing the company’s profit performance and financial position with the average for the industry. The accountant has given you the company’s income statement and balance sheet and also the following data for the industry:
Prepare a common-size income statement and balance sheet for McDonough Products. The first column of each statement should present McDonough Products’ common-size statement, and the second column should show the industry averages.
For the profitability analysis, compute McDonough Products’ (a) ratio of gross profit to net sales (b) ratio of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is McDonough Products’ profit performance better or worse than the average for the industry?
For the analysis of financial position, compute McDonough Products’ (a) ratios of current assets and current liabilities to total assets and (b) ratio of stockholders’ equity to total assets. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry?