Analysis of Income Statements
Lacey Harmoniski had just moved to the Endura Republic as a part of a business school summer internship. His mentor and supervisor, Mr. Rickki, had handed him THE FASTNER CO. income statements and asked him to analyze them. His mentor was proud of the progress the company had made. Lacey knew that the analysis would show how well the joint fastener company had done over the past five years, and that his analysis was his introduction to a company of which his mentor was proud. Mr. Rickki had described the economic environment as one that was difficult: inflation had been high and variable. The company, he said, had coped with the inflation, and prospered.
| THE FASTNER CO. INCOME STATEMENTS (currency in millions) | |||||
| 1999 | 1998 | 1997 | 1996 | 1995 | |
| Volume (in units) | 54,518 | 55,631 | 54,540 | 54,000 | 50,000 |
| Revenues | 10,119 | 8,294 | 6,480 | 4,800 | 4,000 |
| Cost of goods sold: | |||||
| Labor | 2,255 | 1,762 | 1,456 | 1,120 | 1,000 |
| Material | 4,588 | 3,584 | 2,636 | 1,856 | 1,600 |
| Gross profit | 3,276 | 2,948 | 2,388 | 1,824 | 1,400 |
| Marketing expenses | 873 | 715 | 559 | 414 | 345 |
| Administrative expenses | 539 | 435 | 334 | 385 | 282 |
| Operating profit | 1,864 | 1,798 | 1,495 | 1,166 | 855 |
| Taxes | 615 | 593 | 493 | 385 | 282 |
| Net Income | 1,249 | 1,205 | 1,002 | 781 | 573 |
- Calculate common-size statements for the income statements of THE FASTNER CO. On the basis of this analysis, determine how well the company did.
- What was the price per unit of the goods being sold by mE FASTNER co.?
- Rickki has asked that Lacey calculate and comment on the growth rates of the various items on the income statement. Lacey asks that you draft the report. Please do so.
- In spite of the fact that Mr. Rickki had not asked, Lacey decided to put one of his new business school tools to use: an analysis of real growth rates. In addition to the nominal growth rates of the various items, please help him by calculating and commenting on the real growth rates the company has achieved over the past four years. Inflation was as follows:
1999 1998 1997 1996
Inflation 28% 26% 40% 12%
- Draft a report to Mr. Rickki stating your conclusions regarding how well THE FASTNER co. has done.
