CMA Part 2 Essay Practice Questions (Answers are below)
Question: 2.1 – Foyle Inc. Foyle Inc. has prepared the comparative income statements for the three most recent fiscal years that are shown below. While profitable, Foyle has been losing market share and is concerned about future performance. Also presented are data about Foyle’s largest competitor and the industry average.
Revenue Cost of goods sold Gross profit Sales and marketing General and administrative Research and development Operating income
Year 1 $20,000 12,000 8,000 2,000 1,500 1,500 $ 3,000
Year 2 $24,000 12,000 12,000 2,000 2,000 2,000 $ 6,000
Year 3 $30,000 18,000 12,000 2,000 3,000 1,000 $ 6,000
Competitor $45,000 21,600 23,400 5,000 3,150 4,000 $11,250
Ind. Avg. $28,000 14,000 14,000 3,000 2,500 1,500 $ 7,000
REQUIRED: 1. Using the three Foyle Inc. statements, a. Prepare a comparative common-size statement using revenue as the base measure. b. Prepare a common base-year income statement using Year 1 as the base year. Show your calculations. 2. Calculate Foyle’s growth rate of both revenue and operating income for Year 2 and Year 3. Show your calculations. 3. By evaluating Foyle’s performance against the performance of Foyle’s largest competitor and the industry average, identify and discuss three areas that Foyle should target for further investigation and performance improvement. Support your discussion with data.
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