Question

Here are comparative statement data for Duke Company and Lord Company, two competitors. All balance sheet data are as of December 31, 2020, and December 31, 2019.
Duke Company Lord Company
2020 2019 2020 2019
Net sales $1,866,000 $559,000
Cost of goods sold 1,059,888 297,388
Operating expenses 264,972 78,819
Interest expense 7,464 4,472
Income tax expense 54,114 6,149
Current assets 323,000 $311,200 82,000 $78,300
Plant assets (net) 521,400 501,200 138,300 125,100
Current liabilities 66,000 75,600 36,200 31,000
Long-term liabilities 108,200 90,200 29,000 24,600
Common stock, $10 par 496,000 496,000 122,000 122,000
Retained earnings 174,200 150,600 33,100 25,800
A) Prepare a vertical analysis of the 2020 income statement data for Duke Company and Lord Company.
Condensed Income Statement
For the Year Ended December 31, 2017
Duke Company Lord Company
Dollars % Dollars %
Net Sales 1,849,000 100% $546,000 100%
Cost of Goods Sold 1,063,200 57.5% 289,000 52.9%
Gross Profit $785,800 42.52% 57,000 47%
Operating Expenses 240,000 12.9% 82,000 15%
Income from Operations 545,800 29.5% 175,000 32%
Other Expenses and Loses
Interest Expense 6,800 0.4% 3,600 0.7%
Income Before Income
Tax 539,000 29.2% 171,400 31.4%
Income Tax Expense 62,000 3.4% 28,000 5.1%
Net Income/Loss $477,000 25.8% $143,400 26.3%
B) Compute the 2017 return on assets and the return on common stockholders’ equity for both companies.

Answer 1

Answer:

See explanation as attached.

Explanation:

a. Please find attached vertical analysis

Note that the percentage for Duke company and lord company were computed as;

(Particular of amount / Sales) × 100

b. Return on assets

• Duke company 57.59%

• Lord company 67.69%

Return on common stockholder equity

• Duke company 72.44%

• Lord company 94.68%

Breakdown of the above answers are attached.