P15-24A Common-size statements, analysis of profitability and financial position,

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P15-24A Common-size statements, analysis of profitability and financial position,
comparison with the industry, and using ratios to evaluate a company
[20–30 min]

Consider the data for McConnell Department Stores presented in P15-23A.

Requirements

1. Prepare a common-size income statement and balance sheet for McConnell. The
first column of each statement should present McConnell’s common-size statement,
and the second column, the industry averages.

2. For the profitability analysis, compute McConnell’s (a) gross profit percentage and
(b) rate of return on net sales. Compare these figures with the industry averages. Is
McConnell’s profit performance better or worse than the industry average?

3. For the analysis of financial position, compute McConnell’s (a) current ratio and
(b) debt to equity ratio. Compare these ratios with the industry averages. Is
McConnell’s financial position better or worse than the industry averages?

Data from P15-23A

MCCONNELL DEPARTMENT STORES, INC.
Income Statement Compared with Industry Average
Year Ended December 31, 2012
McConnell
Net sales	$778,000	100.00%
Cost of goods sold	522,816	65.8
Gross profit	$255,184	34.2
Operating expenses	161,046	19.7
Operating income	$94,138	14.5
Other expenses	4,668	0.4
Net income	$89,470	14.10%