Question

INCOME STATEMENT -  ALL NUMBERS IN THOUSANDS
Revenue	12/31/17	12/31/16
Total Revenue	177,866,000	135,987,000
Cost of Revenue	111,934,000	88,265,000
Gross Profit	65,932,000	47,722,000
Operating Expenses
Research Development	22,620,000	16,085,000
Selling General and Administrative	38,992,000	27,284,000
Non Recurring	-	-
Others	214,000	167,000
Total Operating Expenses	173,760,000	131,801,000
Operating Income or Loss	4,106,000	4,186,000
Income from Continuing Operations
Total Other Income/Expenses Net	-304,000	-390,000
Earnings Before Interest and Taxes	4,106,000	4,186,000
Interest Expense	-848,000	-484,000
Income Before Tax	3,802,000	3,796,000
Income Tax Expense	769,000	1,425,000
Minority Interest	-	-
Net Income From Continuing Ops	3,033,000	2,371,000
Non-recurring Events
Discontinued Operations	-	-
Extraordinary Items	-	-
Effect Of Accounting Changes	-	-
Other Items	-	-
Net Income
Net Income	3,033,000	2,371,000
Preferred Stock And Other Adjustments	-	-
Net Income Applicable To Common Shares	3,033,000	2,371,000

A. Include the vertical AND horizontal AND ratio analysis for the company, draw conclusions from the analysis

Answer 1

1) Gross Margin:

For year 2017 =2.69

For year 2016 = 2.85

The gross margin ratio is decreased in this year. Gross margin ratio is a profitability ratio that measures how profitable a company can sell its inventory. It only makes sense that higher ratios are more favorable.

2) Operating Profit Ratio :

For Year 2017 : 0.02

For Year 2016 : 0.03

A higher operating margin is more favorable compared with a lower ratio because this shows that the company is making enough money from its ongoing operations to pay for its variable costs as well as its fixed costs.

3) Interest Coverage ratio :

For Year 2017 : 4.84

For year 2016 : 8.65

The company is extremely liquid and shouldn’t have problem getting a loan to expand.

4. R & D to sales : R & D expenses / Revenue

For year 2017 : 0.12

For year 2016 : 0.118