Gross profit margin ratio industry average




Industry averages are important to both existing businesses and aspiring entrepreneurs planning to establish a business. Existing businesses, in most cases, require additional financing from time to time (for renovation, for purchasing new equipment, for financing operations during slow periods, etc). At any rate, when an existing business applies for a loan, a bank will require the business supply them with prior year's balance sheets and income statements. The bank will create ratios from the company's financial statements and compare their ratios to ratios of other businesses within the industry. This process generally determines whether the enterprise will have the ability to pay the loan back.

Let's now begin our comparison of the Widget Manufacturing Company's ratios to the average ratios of other businesses within the industry (IE Industry Averages). Below provides the company's 200Y balance sheet and income statement as well as the balance sheet and income statement for the average business within the industry. Our task is to use the 200Y financial statements to calculate ratios for Widget Manufacturing Company and for the average business within the industry.

Widget Manufacturing Company & Industry Averages
Balance Sheet
As of December 31, 200Y

Widget Manufacturing
200Y
Industry Aver.
200Y
ASSETS
Current Assets:
Cash
$ 2,550
$12,258
Marketable Securities
$ 2,000
$ 1,200
Account Receivable (Net)
$16,675
$14,765
Inventories
$26,470
$23,341
Total Current Assets
$47,695
$51,564
Fixed Assets
Plant & Equipment
$41,000
$55,000
Less: Accumulated Depreciation
$11,000
$15,000
Net Plant & Equipment
$30,000
$40,000

TOTAL ASSETS
$77,695
$91,564

LIABILITIES
Current Liabilities:
Accounts Payable
$ 9,500
$ 8,725
Short-term Bank Loan
$11,375
$ 5,050
Other Current Liabilities
0
$ 6,125
Total Current Liabilities
$20,875
$19,900
Total Long Term Debt
$24,000
$18,100
TOTAL LIABILITIES
$44,875
$38,000

EQUITY
Common Shares
$25,000
$28,000
Retained Earnings
$ 7,820
$25,564

$32,820
$53,564

TOTAL LIABILITIES & EQUITY
$77,695
$91,564

Widget Manufacturing Company & Industry Averages
Condensed Income Statement
For Years Ending December 31, 200Y

Widget Manufacturing
200Y
Industry Aver.
200Y
Net Sales
$112,500
$130,420
Cost of Goods Sold(COGS)
$ 85,040
$ 94,560
Gross Margin
$ 27,460
$ 35,860

Operating Expenses
$ 18,950
$20,000

Net Income Before Taxes
$ 8,510
$15,860
Less: Taxes
$ 4,163
$ 5,160

Net Income After Taxes
$ 4,347
$10,700

Below calculates and compares ratio of The Widget Manufacturing Company to ratios of the average business within the industry

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Accounting for Management - Accounting theme from Business Law.