Chapter 11
Financial Statement Analysis
551
AP-7A (
4
5
)
Presented below is the comparative income statement of Newton Company for 2016 and 2015.
Newton Company
Income Statement
For the Year Ended December 31, 2016
2016
2015
Sales
$194,890 $108,345
Cost of Goods Sold
116,934
65,007
Gross Profit
77,956
43,338
Operating Expenses
Advertising Expense
4,000
2,000
Bank Charges Expense
580
0
Communication Expense
5,380
3,684
Legal and Professional Expense
6,000
3,950
Utilities Expense
3,330
1,503
Rent Expense
3,500
3,500
Repairs and Maintenance Expense
4,000
2,500
Salaries and Wages Expense
3,000
1,800
Transportation Expense
3,200
1,700
Interest Expense
1,248
580
Depreciation Expense
1,550
990
Total Operating Expenses
35,788
22,207
Operating Profit before Tax
42,168
21,131
Income Tax
12,650
6,339
Net Income
$29,518 $14,792
Required
a) Calculate the following ratios for both years.
• EBIT Percentage to Sales
• Interest Coverage Ratio
