200821 Financial Reports for Decision Making
Topic 3: The Income Statement
Ratios are useful for making comparisons. However, they can also be used to help find missing information.
(a) Use your understanding of the Income Statement and the Gross Profit Percentage and Profit Margin
ratios to fill in the missing details in the following situations for year ending 30 June 2017, 2018 and
2019:
2016 2017 2018 2019
Sales 748,000 770,400 777,941 862,800
Cost of goods sold 450,000 460,480 462,061 529,040
Gross margin 298,000 309,920 315,880 333,760
Selling and admin expenses 202,000 207,050 210,080 220,180
Net income 96,000 102,870 105,800 113,580
Profit margin 12.8% 13.4% 13.6% 13.2%
Gross profit percentage 39.8% 40.2% 40.6% 38.7%
(b) Using the above information, answer the following questions:
i. Which year has the highest dollar value for sales and net income?
2019
ii. In which of the four years would you say the company has performed the best? Why?
Note: this
2018 – higher profit margin and higher gross profit percentage (meaning sales
demonstrates that
were more profitable in 2018 than any of the other 3 years, as the business was
we should never
keeping a larger percentage pf each dollar of sales as profit, both gross profit
make comparisons
and net income)
based on dollar
values, as they can
be misleading. We
should, instead,
make comparisons
based on
percentages (so
trends) or ratios.
NOTE: Be sure to follow the decision making framework in answering any question:
1. Identify problem
2. Identify alternatives
3. Evaluate alternatives
4. Make decision
Page 1 of 1
Topic 3: The Income Statement
Ratios are useful for making comparisons. However, they can also be used to help find missing information.
(a) Use your understanding of the Income Statement and the Gross Profit Percentage and Profit Margin
ratios to fill in the missing details in the following situations for year ending 30 June 2017, 2018 and
2019:
2016 2017 2018 2019
Sales 748,000 770,400 777,941 862,800
Cost of goods sold 450,000 460,480 462,061 529,040
Gross margin 298,000 309,920 315,880 333,760
Selling and admin expenses 202,000 207,050 210,080 220,180
Net income 96,000 102,870 105,800 113,580
Profit margin 12.8% 13.4% 13.6% 13.2%
Gross profit percentage 39.8% 40.2% 40.6% 38.7%
(b) Using the above information, answer the following questions:
i. Which year has the highest dollar value for sales and net income?
2019
ii. In which of the four years would you say the company has performed the best? Why?
Note: this
2018 – higher profit margin and higher gross profit percentage (meaning sales
demonstrates that
were more profitable in 2018 than any of the other 3 years, as the business was
we should never
keeping a larger percentage pf each dollar of sales as profit, both gross profit
make comparisons
and net income)
based on dollar
values, as they can
be misleading. We
should, instead,
make comparisons
based on
percentages (so
trends) or ratios.
NOTE: Be sure to follow the decision making framework in answering any question:
1. Identify problem
2. Identify alternatives
3. Evaluate alternatives
4. Make decision
Page 1 of 1
