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Apple a Day Inc and Unforgettable Edibles Inc are food catering businesses that operate in the same metropolitan area Their customers include Fortune 500 companies regional firms

Apple a Day, Inc., and Unforgettable Edibles, Inc. are food catering businesses that operate in the same metropolitan area. Their customers include Fortune 500 companies, regional firms, and individuals. The two firms reported similar profit margins for the current year, and both base bonuses for managers on the achievement of a target profit margin and return on equity. Each firm has submitted a loan request to you, a loan officer for City National Bank. They have provided you with the following information:

 

 

Apple a Day

Unforgettable Edibles

Net sales

$625,348

$717,900

Cost of goods sold

225,125

287,080

Gross margin

$400,223

$430,820

Operating expenses

281,300

371,565

Operating income

$118,923

$ 59,255

Gain on sale of real estate

81,923

Interest expense

(9,333)

(15,338)

Income before income taxes

$109,590

$125,840

Income taxes expense

25,990

29,525

Net income

$ 83,600

$ 96,315

Average stockholders’ equity

$312,700

$390,560

1. Perform a vertical analysis and prepare a common-size income statement for each firm. Compute profit margin and return on equity.

2. Discuss these results, the bonus plan for management, and loan considerations. Identify the company that is the better loan risk.

Jun 19 2020 View more View Less

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