Financial Accounting: An Integrated Statements Approach, 2nd Edition

1. Prepare a common-size income statement for both companies. Round to one decimal place.


2. Determine the DuPont formula for each company. Round to two decimal places.


3. Calculate the accounts receivable, inventory, and fixed asset turnover for each company.
   Round to two decimal places.


4. Analyze and compare the two companies, based on your answers in parts (1) through (3).

United Parcel Service, Inc., is the world’s largest package delivery company. Condensed income

statement information for three recent comparative years is as follows:

The average total assets of United Parcel Service, Inc., for comparative years were as follows:

2004 2003 2002

Average total assets $62,760 $56,091 $50,993

1. Prepare comparative income statements with vertical analysis for all three years. Round to
   one decimal place.


2. Calculate the DuPont formula for the three comparative years. Round to one decimal place.


3. Analyze the company’s performance trend for the three comparative years, using the in-
   formation in parts (1) and (2).

Lee Camden, president of Camden Equipment Co., prepared a draft of the Management

Discussion and Analysis to be included with Camden Equipment Co.’s 2007 annual report. The

letter mentions a 10% increase in sales and a recent expansion of plant facilities, but fails to men-

tion the net loss of $180,000 for the year. You have been asked to review the draft for the annual

report.

How would you respond to the omission of the net loss of $180,000? Specifically, is such an

action ethical?

682 Chapter 14 Financial Statement Analysis

BUSINESS ACTIVITIES AND RESPONSIBILITY ISSUES

Activity 14-1

Ethics and professional con-

duct in business

Case 14-6

Comprehensive DuPont and

asset efficiency ratios

United Parcel Service, Inc.

Comparative Income Statements

For the Years Ended December 31, 2004, 2003, 2002

(in millions)

2004 2003 2002

Revenues $36,582 $33,485 $31,272

Operating expenses:

Compensation and benefits $20,916 $19,328 $17,940

Other 10,677 9,712 9,236

$31,593 $29,040 $27,176

Operating profit $ 4,989 $ 4,445 $ 4,096

Other income (expense) (67) (75) 913

Income before income taxes $ 4,922 $ 4,370 $ 5,009

Income taxes 1,589 1,472 1,755

Net income $ 3,333 $ 2,898 $ 3,254