Question

Rate of Change Analyses

Teicher Company presents the following condensed comparative income statements for 2020, 2019, and 2018:

	For Years Ended December 31,
	2020		2019		2018
Sales (net)	$120,000		$100,000		$85,000
Cost of goods sold	(72,000)		(55,000)		(45,000)
Gross profit	$48,000		$45,000		$40,000
Operating expenses	(22,000)		(20,000)		(18,000)
Operating income	$26,000		$25,000		$22,000
Other items:
Dividend revenue	400		500		200
Interest expense	(1,200)		(1,000)		(500)
Income before income taxes	$25,200		$24,500		$21,700
Income tax expense	(8,200)		(8,000)		(6,000)
Net income	$17,000		$16,500		$15,700
Number of common shares	6,000		6,000		5,000
Earnings per share	$2.83		$2.75		$3.14

Required:

Next Level Prepare rate of change analyses for Teicher for 2019 and 2020 using year-to-year growth rates.

Round Earnings per Share computation to two decimal places. If required, round all percentage changes to one decimal place. If an amount is zero, enter a "0"; do not leave the amount box blank.

TEICHER COMPANY
Comparative Income Statements
Rate of Change Analysis
	For Year Ended December 31 2020	For Year Ended December 31 2019	For Year Ended December 31 2018	Year-to-Year Increase (Decrease) 2019 to 2020 Amount	Year-to-Year Increase (Decrease) 2019 to 2020 %	Year-to-Year Increase (Decrease) 2018 to 2019 Amount	Year-to-Year Increase (Decrease) 2018 to 2019 %
Sales (net)	$	$	$	$		$
Cost of goods sold
Gross profit	$	$	$	$		$
Operating expenses
Operating income	$	$	$	$		$
Other items:
Dividend revenue
Interest expense
Income before income taxes	$	$	$	$		$
Income tax expense
Net income	$	$	$	$		$
Number of common shares
Earnings per share	$	$	$	$		$

What favorable or unfavorable trends do your analyses reveal about Teicher Company’s financial performance?

The analyses reveal that the company --------experienced significant growth rates in sales over the 2-year period, but ---------- experienced even more significant growth rates in cost of goods sold. In addition, growth in operating expenses and income taxes substantially moderated the ----------- in net income. The percentage ---------- in cost of goods sold between 2019 and 2020 was particularly large. Although the percentage ----------- in net income was ----------- from 2018 to 2019 than it was from 2019 to 2020, there was a ------------- percentage change in earnings per share from 2018 to 2019 due to the large -------------- in the common shares outstanding. The large percentage changes in dividend revenue and interest expense are primarily the result of the use of small numbers as the bases and --------------- be attached undue significance.

Answer 1

Rate of change analysis

	Year ended 31/12/20	Year ended 31/12/19	Year ended 31/12/18	Year to year Increase or decrease (2019 to2020)	Percentage increase or decrease (2019 to 2020)	Year to year increase or Decrease (2018 to 2019)	Percentage increase or decrease (2018 to 2019)
Sales	120000	100000	85000	20000	20	15000	17.65
Cost of goods sold	(72000)	(55000)	(45000)	17000	31	10000	22.22
Gross profit	48000	45000	40000	3000	6.67	5000	12.5
Operating expenses	(22000)	(20000)	(18000)	2000	10	20000	11.11
Operating incomes	26000	25000	22000	1000	4	3000	13.64
Other items:
Dividend revenue	400	500	200	(100)	(20)	300	150
Interest expense	(1200)	(1000)	(500)	200	20	500	100
Income before income tax	25200	24500	21700	700	2.86	2800	13
Income tax expenses	(8200)	(8000)	(6000)	200	2.5	2000	33.33
Net income	17000	16500	15700	500	3	800	5.1
Number of common shares	6000	6000	5000	0	0	1000	20
Earnings per share	2.83	2.75	3.14	0.08	3	(.39)	(12.4)

The analyses reveal that the company has experienced significant growth rates in sales over the 2-year period, but experienced even more significant growth rates in cost of goods sold. In addition, growth in operating expenses and income taxes substantially moderated the growth in net income. The percentage in cost of goods sold between 2019 and 2020 was particularly large. Although the percentage change in net income was 5.1 from 2018 to 2019 than it was from 2019 to 2020, there was a.0.39 percentage change in earnings per share from 2018 to 2019 due to the large increase in the common shares outstanding. The large percentage changes in dividend revenue and interest expense are primarily the result of the use of small numbers as the bases and must be attached undue significance.