Apple a Day, Inc. and Health
Edibles, Inc. are food catering businesses that operate in the same
metropolitan area. Their customers include Fortune 500 companies, regional
firms, and individuals. The two firms reported similar profit margins for the
current year. Also, both firms base bonuses for managers on the achievement of
a target profit margin and return on equity. Each firm has submitted a loan
request to you, a loan officer for City National Bank. They have provided you
with the following information:
|
Apple a Day |
Healthy Edibles |
|
|
Net Sales |
$625,348 |
$717,900 |
|
Cost of goods sold |
$225,125 |
$287,080 |
|
Gross margin |
$400,223 |
$430,820 |
|
Operating expenses |
$281,300 |
$371,565 |
|
Operating income |
$118,923 |
$59,255 |
|
Gain on sale of real estate |
— |
$81,923 |
|
Interest expense |
$-9,333 |
$-15,338 |
|
Income before income taxes |
$109,590 |
$125,840 |
|
Income tax expense |
$25,990 |
$29,525 |
|
Net income |
$83,600 |
$96,315 |
|
Average stockholders’ equity |
$312,700 |
$390,560 |
Write a paper that completes the
following tasks:
- Perform a
vertical analysis and prepare a common-size income statement for each
firm. Compute profit margin and return on equity. (Round your answers to
one decimal place.) - Discuss
these results, the bonus plan for management, and loan considerations.
Identify the company that is a better loan risk and explain why.
Your paper should meet the
following requirements:
- Be 3-5
pages in length, not counting the required title and reference pages. Your
paper should include an introduction, a body with at least two fully
developed paragraphs, and a conclusion. - APA style.
Textbook
(Managerial Accounting 13 edition, Warren, Reeve, Duchac).
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