Acct212 Financial Accounting: Course Project 2 - Medical Products Inc

ACCT 212 Financial Accounting
Course Project 2 - Medical Products Inc.

Learning Objectives : Preparing common-size statements; analyzing profitability; making comparisons with the industry
Top managers of Medical 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:

Medical Products, Inc.
Income Statement Compared with Industry Average
Year Ended December 31, 20X5
Medical Industry Average
Net sales.......................................... $ 957,000 100.0%
Cost of goods sold............................. 652,000 55.9
Gross profit....................................... 305,000 44.1
Operating expenses .......................... 200,000 28.1
Operating income............................... 105,000 16.0
Other expenses................................. 3,000 2.4
Net income .......................................... $ 102,000 13.6%

Medical Products, Inc.
Balance Sheet Compared with Industry Average
December 31, 20X5
Medical Industry Average
Current assets........................................ $ 486,000 74.4%
Fixed assets, net ................................... 117,000 20.0
Intangible assets, net ......... .................. 24,000 0.6
Other assets.......................................... 3,000 5.0
Total .................................................... 630,000 100.0
Current liabilities .................................... 245,000 45.6
Long-term liabilities ................................ 114,000 19.0
Stockholders’ equity................................. 271,000 35.4
Total ..................................................... $ 630,000 100.0%

Requirements
1. Prepare a common-size income statement and balance sheet for Medical Products. The first column of each statement should present Medical Products’ common-size statement, and the second column should show the industry averages.
2. For the profitability analysis, compute Medical 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 Medical Products’ profit performance better or worse than the average for the industry?
3. For the analysis of financial position, compute Medical Products’ (a) ratios of current assets and current liabilities to total assets and (b) ratio of stockholders’ equity to total assets. Compare these ratios with the industry averages. Is Medical Products’ financial position better or worse than the average for the industry?
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