Question

Based on the below simplified income statements, which Company had the better year.. . and why?...

Based on the below simplified income statements, which Company had the better year.. . and why?

A B C
Sales 100 105 90
Cost of Goods Sold 75 50 80
Gross Income 25 55 10
Operating Expense (Selling, R&D, Admin) 10 30 20
Earnings Before Interest & Taxes (EBIT) 10 25 -10
Interest Expense 1 20 0
Extraordinary income/(Expense) 0 0 25
Tax 2 2 0
Net Income 7 3 15

Homework Answers

Answer #1

Company A had the better year, because this company has been able to report a higher amount of net income which is without consideration of extraordinary income and this company has been able to keep the operating income to a very lower level and it has also been able to keep Interest expense to a very lower level because debt capital would have been lower in the overall capital structure.

When other companies are concerned, Company C, did not had a good year because it has made loss before it has adjusted sale for extraordinary income whereas, company B has a large amount of tax as well as interest expense so company A is performing the best among all this company

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