ACCT 212 : Course Project 2

Learning Objectives : Preparing common­size 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
Net sales…………………………………………………………………….
Cost of goods sold……………………………………………………..
Gross profit………………………………………………………………..
Operating expenses …………………………………………………..
Operating income……………………………………………………….
Other expenses…………………………………………………………..
Net income ………………………………………………………………..

$700,000
490,000
210,000
175,000
35,000
7,000
$28,000

Industry
Average
100.0%
57.3
42.7
29.4
13.3
2.5
10.8%

McDonough Products, Inc.
Balance Sheet Compared with Industry Average
December 31, 2010
Industry
McDonough

Average

Current assets…………………………………………………………….
Fixed assets, net ………………………………………………………..
Intangible assets, net ………………………………………………….
Other assets……………………………………………………………….
Total ………………………………………………………………………….

$471,200
114,700
21,080
13,020
620,000

72.1%
19.0
4.8
4.1
100.0%

Current liabilities ………………………………………………………..
Long­term liabilities ……………………………………………………
Stockholders’ equity……………………………………………………
Total ………………………………………………………………………….

240,560
135,160
244,280
$620,000

47.2%
21.0
31.8
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 common­size income statement and balance sheet for McDonough Products. The first column of each statement should present McDonough Products’ common­size 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?

Chapter 13: Financial Statement Analysis

Page 1 of 3

Requirement #1
McDonough Products, Inc.
Common-Size Income Statement Compared to Industry Average
Year Ended December 31, 2010
McDonough

Industry

Products

Average

Net sales……………………………………………………
Cost of goods sold………………………………………..
Gross profit…………………………….…………………..
Operating expenses……………………………………….
Operating income………………………………………….
Other expenses…………………………………………….
Net income…………………………………………………

McDonough Products, Inc.
Common-Size Balance Sheet Compared to Industry Average
Year Ended December 31, 2010
McDonough
Current assets……………………………………………..
Fixed assets, net…………………………………………..
Intangible assets, net………………………………………
Other assets……………………………………………….
Total assets………………………………………………..
Current liabilities………………………….………………..
Long­term liabilities………………………………………..
Stockholders’ equity……………………………………….
Total liabilities and stockholders’ equity…………………

Requirement #2

Requirement #3

Industry

Products

Average

Project 2 Grading Rubric

Criteria
Common Size Analysis: (50 pts

Excellent

Good

Poor

Very Poor

poss)

awarded

Completeness ­ 25pts poss All requirements are
completed in
accordance with the

All requirements are

Most requirements are Many requirements completed and mostly completed that mostly are not completed follow the directions, follow the directions, and/or the directions directions, labeled and labeled and fairly organized well in organized in missing some labels nd only somewhat were generally not
followed, missing worksheet.organized.labels and unorganized.

25 pts
Accuracy ­ 25pts poss

Points

All ratios are calculated with worksheet.22­24 pts

19­21 pts

0­18 pts

80% plus of ratios are 60­79% of ratios are Less than 60% of

calculated with ratios are calculated accurate results and accurate results and appropriate terms of mostly appropriate accurate results and some appropriate with accurate results and some appropriate expression.

terms of expression.

terms of expression.

25 pts

terms of expression.
22­24 pts

19­21 pts

0­18 pts

Profitability Ratios: (50 pts poss)
Completeness ­ 25pts poss All requirements are
completed in

All requirements are Most requirements are Many requirements
completed and mostly completed that mostly are not completed

accordance with the follow the directions, follow the directions, and/or the directions
directions, labeled and labeled and fairly
missing some labels were generally not
organized well in
worksheet.

organized in
worksheet.

and only somewhat
organized.

followed, missing
labels and
unorganized.

25 pts
Accuracy ­25 pts poss

All ratios are

22­24 pts

19­21 pts

0­18 pts

80% plus of ratios are 60­79% of ratios are Less than 60% of

calculated with
calculated with
accurate results and accurate results and

calculated with
accurate results and

ratios are calculated
with accurate results

appropriate terms of mostly appropriate
expression.
terms of expression.

some appropriate
terms of expression.

and some appropriate
terms of expression.

25 pts

22­24 pts

19­21 pts

0­18 pts

Analysis of Financial Position:(50
pts poss)
Completeness ­ 25pts poss All requirements are
completed in
accordance with the

All requirements are

Most requirements are Many requirements

completed and mostly completed that mostly are not completed
follow the directions, follow the directions, and/or the directions

directions, labeled and labeled and fairly
organized well in
organized in

missing some labels
and only somewhat

were generally not
followed, missing

worksheet.

organized.

labels and
unorganized.

25 pts
Accuracy ­ 25 pts poss

All ratios are

worksheet.
22­24 pts

19­21 pts

0­18 pts

80% plus of ratios are 60­79% of ratios are Less than 60% of

calculated with
calculated with
accurate results and accurate results and

calculated with
accurate results and

ratios are calculated
with accurate results

appropriate terms of mostly appropriate

some appropriate

and some appropriate

expression.

terms of expression.

terms of expression.

25 pts

terms of expression.
22­24 pts

19­21 pts

0­18 pts
Total Points Earned
0
Out of 150 pts