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Common Size and Ratios

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I have to create a common size income statement and compute ratios. My text is not very helpful.

Common size statements; profitability, efficiency, and market value ratios Cotter Company's balance sheet at December 31, 2005 and income statement for the year ended December 31, 2005 are shown here:

See attachment.

Common size statements; profitability, efficiency, and market value ratios Cotter Company's balance sheet at December 31, 2005 and income statement for the year ended December 31, 2005 are shown here:

Cotter Company
BalanceSheet
December 31, 2005

Assets
Current assets $35,000
Market securities 60,000
Accounts receivable 45,000
Inventories 215,000
Prepaid expenses 45,000
Total current assets 400,000
Property, plant, and equipment, net 1,300,000
Total assets $1,700,000

Liabilities and Stockholder's Equity
Liabilities:
Current liabilities $105,000
Long-term debt 420,000
Total liabilities 525,000
Stockholders' equity
Common stock, $15 par value $150,000
Paid-in capital in excess of par 300,000
Retained earnings 725,000
Total stockholders' equity 1,175,000
Total liabilities and stockholder's equity $1,700,000

Cotter Company
Income Statement
For the Year Ended December 31, 2005
Sales $2,500,000
Cost of sales 975,000
Gross profit $1,525,000
Selling, general, and administrative expenses 945,000
Operating profit 580,000
Internet expense 38,000
Pretax income 542,000
Income taxes 216,800
Net income 325,200

a. Present the income statement and balance sheet in (monetary and) common size form.
b. Cotter Company's common stock price per share at the end of 2005 was $125, and dividends per share were $3.45. Compute the following ratios:
? Return on assets
? Return on common equity
? Basic earnings per share
? Dividend yield ratio
? Gross profit margin
? Operating profit margin
? Net profit margin
? Price earnings ratio
? Market to book value

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Solution Summary

The solution explains how to prepare common size financial statements and calculate the given profitability, efficiency and market value ratios.

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Common size statements; profitability, efficiency, and market value ratios Cotter Company's balance sheet at December 31, 2005 and income statement for the year ended December 31, 2005 are shown here:

Cotter Company
BalanceSheet
December 31, 2005

Assets
Current assets $35,000
Market securities 60,000
Accounts receivable 45,000
Inventories 215,000
Prepaid expenses 45,000
Total current assets 400,000
Property, plant, and equipment, net 1,300,000
Total assets $1,700,000

Liabilities and Stockholder's Equity
Liabilities:
Current liabilities $105,000
Long-term debt 420,000
Total liabilities 525,000
Stockholders' equity
Common stock, $15 par value $150,000
Paid-in capital in excess of par 300,000
Retained earnings 725,000
Total stockholders' equity 1,175,000
Total liabilities and stockholder's equity $1,700,000

Cotter Company
Income Statement
For the Year Ended December 31, 2005
Sales $2,500,000
Cost of sales 975,000
Gross profit $1,525,000
Selling, general, and administrative expenses ...

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