Explanation:
To analyze the common-size income statement, we need to express each item as a percentage of net revenue for each year:
Year 1 Common-Size Analysis:
Year 2 Common-Size Analysis:
Key Observations:
Analysis of Options:
However, the question asks what the common-size income statement most likely indicates. While gross margin improvement could suggest differentiated products, the improvement in operating margin (from 22.15% to 24.32%) is driven by both gross margin improvement and slightly lower interest expense as percentage of revenue. The SG&A expense percentage increased, so there was no cost cutting.
Correct Answer: C is incorrect - The data shows SG&A expense as a percentage of revenue increased from 11.18% to 11.30%, indicating no cost cutting.
The most likely correct answer is B - The significant improvement in gross margin (from 33.33% to 35.62%) suggests the company may be selling more differentiated, higher-margin products.
Note: Since the provided text only shows options A, B, and C, and the correct answer is not explicitly given, based on financial statement analysis principles, option B is the most plausible answer given the data.
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The following table summarizes income statement data for a manufacturing company:
| Item | Year 2 (in € Thousands) | Year 1 (in € Thousands) |
|---|---|---|
| Net revenue | 2,611 | 2,325 |
| Cost of goods sold | 1,700 | 1,550 |
| Gross profit | 930 | 775 |
| Selling, general & administrative expense | 295 | 260 |
| Operating income | 635 | 515 |
| Interest expense | 55 | 55 |
| Pre-tax income | 580 | 460 |
| Income tax | 155 | 120 |
| Net income | 425 | 340 |
Compared with Year 1, the Year 2 common-size income statement most likely indicates:
A
a lower tax rate.
B
sale of a new, differentiated product.
C
cost cutting in selling, general and administration.