Excel 2007

Acct212 Financial Accounting: Course Project 2 Template 01102012 (McDonough Products)

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Acct212 Financial Accounting 

Course Project 2 – McDonough Products Inc.

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.  The problem is that McDonough is in dollars and the Industry Average is in percentages.  To complete the analysis you will need to convert McDonoughs dollar amounts to percentages.

McDonough Products, Inc.

Income Statement Compared with Industry Average

Year Ended December 31, 2010

McDonough    “Industry Average”

Net sales………………………….$700,000         100.0%

Cost of goods sold……………….490,000           57.3

Gross profit……………….          210,000           42.7

Operating expenses …….        175,000           29.4

Operating income…………..       35,000            13.3

Other expenses………………       7,000              2.5

Net income ……………………    $28,000           10.8%

McDonough Products, Inc.

Balance Sheet Compared with Industry Average

December 31, 2010

McDonough    “Industry Average”

Current assets………………           $471,200             72.1%

Fixed assets, net ………….             114,700              19.0

Intangible assets, net …………..       21,080                4.8

Other assets…………………………     13,020                4.1

Total …………………………..           620,000             100.0%

Current liabilities ……………………       240,560           0.5

Long-term liabilities ………                 135,160           21.0

Stockholders’ equity……………….        244,280           31.8

Total ……………………………………    $620,000         100.0%

Industry Average Current Ratio                                 1.53

Industry Average Total Debt to Total Assets               0.68

See red triangle for helpful hints.                           

Requirements

1.         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.

2.         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?

3.         For the analysis of financial position, compute McDonough Products’ (a) Current ratio and (b) Debt ratio. Compare these ratios with the industry averages. Is McDonough Products’ financial position better or worse than the average for the industry?

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