Sunday 7 October 2012

Arlington Company has prepared the following common-size income statement to

Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:

 

Arlington Co.

Industry

Revenues

100

100.00%

Cost of goods sold

43.80%

39.70%

Gross Profit

56.20%

60.30%

Operating Expenses:

 

 

Sales and marketing expenses

18.10%

21.40%

General and administrative expense

12.00%

14.20%

Research and development expense

4.10%

4.00%

Total operating expenses

34.20%

39.60%

 

 

 

Income before income tax

22.00%

20.70%

Income tax expenses

4.40%

4.20%

Net income (loss)

17.60%

16.50%

 

Which of the following statements can be correctly concluded from the above data?

·        Arlington’s gross profit per dollar of sales is higher than the industry average.

·        Arlington’s net income is higher than the industry average.

·        Arlington’s achieves better results than the industry by earning higher revenues.

·        Arlington’s achieves better profitability than the industry, primarily by controlling operating expenses more effectively.



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