Presented below is information related to Ivan Calderon Corp. for the year 2017. This article will provide a financial analysis of the company’s performance based on its income statement and other relevant data. The article will also compare the company’s results with its industry peers and discuss the implications for its future prospects.
Income Statement Overview
The income statement of Ivan Calderon Corp. for the year 2017 shows the following figures:
- Net sales: $1,300,000
- Cost of goods sold: $780,000
- Gross profit: $520,000
- Selling expenses: $65,000
- Administrative expenses: $48,000
- Income from operations: $407,000
- Other income and expenses:
- Write-off of inventory due to obsolescence: ($80,000)
- Depreciation expense omitted by accident in 2016: ($55,000)
- Casualty loss: ($50,000)
- Income tax expense: ($84,680)
- Net income: $137,320
- Earnings per share: $2.29
The income statement reveals that the company had a positive net income and earnings per share in 2017, despite facing some challenges and losses. The company’s gross profit margin was 40%, which is higher than the industry average of 35%. The company’s operating margin was 31.3%, which is also above the industry average of 25%. However, the company’s net profit margin was only 10.6%, which is lower than the industry average of 15%. This indicates that the company had higher expenses and taxes than its competitors.
Income Statement Analysis
To understand the factors that affected the company’s income statement in 2017, we need to look at some of the items in more detail.
Write-off of Inventory Due to Obsolescence
The company had to write off $80,000 worth of inventory due to obsolescence in 2017. This means that the company had some products that were outdated or unsalable and had to be disposed of. This could be a sign of poor inventory management or changing customer preferences. The write-off reduced the company’s net income by $49,600 (after tax) and its earnings per share by $0.83.
Depreciation Expense Omitted by Accident in 2016
The company discovered that it had omitted $55,000 of depreciation expense in 2016 by accident. This means that the company had understated its expenses and overstated its income in 2016. To correct this error, the company had to increase its depreciation expense and decrease its net income by $34,100 (after tax) and its earnings per share by $0.57 in 2017.
The company suffered a casualty loss of $50,000 in 2017 due to a fire that damaged some of its property. This was an unexpected and non-recurring event that reduced the company’s net income by $31,000 (after tax) and its earnings per share by $0.52.
Income Tax Expense
The company’s income tax expense was $84,680 in 2017, which represents an effective tax rate of 38%. This is higher than the statutory tax rate of 35%, which means that the company had some non-deductible expenses or adjustments that increased its taxable income. The high tax rate reduced the company’s net income and earnings per share.
Comparison with Industry Peers
To evaluate the company’s performance relative to its industry peers, we can use some financial ratios and benchmarks. According to Industry Norms and Key Business Ratios, the average financial ratios for companies in the same industry as Ivan Calderon Corp. are as follows:
- Gross profit margin: 35%
- Operating margin: 25%
- Net profit margin: 15%
- Return on assets: 10%
- Return on equity: 15%
- Current ratio: 2
- Quick ratio: 1
- Debt-to-equity ratio: 0.5
Using these ratios, we can compare Ivan Calderon Corp.’s performance with its industry peers as follows:
|Ratio||Ivan Calderon Corp.||Industry Average||Difference|
|Gross profit margin||40%||35%||+5%|
|Net profit margin||10.6%||15%||-4.4%|
|Return on assets||8.2%||10%||-1.8%|
|Return on equity||12.3%||15%||-2.7%|
The table shows that Ivan Calderon Corp. had higher gross profit and operating margins than its industry peers, which indicates that the company was more efficient and profitable in its core operations. However, the company had lower net profit margin, return on assets, and return on equity than its industry peers, which indicates that the company had higher expenses and taxes and lower asset and equity utilization. The company also had lower liquidity and solvency ratios than its industry peers, which indicates that the company had less ability to meet its short-term and long-term obligations.
Implications for Future Prospects
Based on the financial analysis of Ivan Calderon Corp.’s income statement for the year 2017, we can draw some implications for the company’s future prospects.
- The company needs to improve its inventory management and customer satisfaction to avoid obsolescence and write-offs in the future.
- The company needs to ensure that it does not omit or misstate any expenses or income in its financial statements to avoid errors and adjustments in the future.
- The company needs to reduce its exposure to casualty losses by implementing adequate risk management and insurance policies.
- The company needs to lower its effective tax rate by taking advantage of tax deductions, credits, and incentives.
- The company needs to increase its net income and earnings per share by reducing its expenses and increasing its revenues.
- The company needs to improve its asset and equity utilization by investing in profitable projects and increasing its sales volume.
- The company needs to enhance its liquidity and solvency by maintaining adequate cash balances and reducing its debt levels.
By addressing these issues, Ivan Calderon Corp. can improve its financial performance and position in the industry and create value for its shareholders.
In conclusion, this article presented a financial analysis of Ivan Calderon Corp.’s income statement for the year 2017. The article showed that the company had a positive net income and earnings per share in 2017, despite facing some challenges and losses. The article also compared the company’s results with its industry peers and discussed the implications for its future prospects. The article suggested some recommendations for the company to improve its financial performance and position in the industry.