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Exhibit 1 Operating Expenses for Years Ending December 31, 1993-1995, and for First
Quarter 1996 (thousands of dollars)
Net sales
Cost of Goods Sold:
Beginning inventory
Purchases
Ending inventory
Total Cost of Goods Sold
Gross profit
Operating expensesb
Earnings before interest and taxes
Interest expense
Net income before income taxes
Provision for income taxesc
Net income
1993
1994
1995
$2,921
$3,477
$4,519
$1,062a
330
2,209
$2,539
337
$2,202
337
2,729
$3,066
432
$2,634
432
3,579
$4,011
587
$3,424
587
819
$1,406
607
$799
719
622
$97
23
$74
14
$60
843
717
$126
42
$84
16
$68
1,095
940
$155
56
$99
22
$77
263
244
$19
13
$6
1
$5
In the first quarter of 1995, sales were $903,000 and net income was $7,000
Operating expenses include a cash salary for Mr. Clarkson of $75,000 in 1993; $80,000 in 1994; $85,000 in 1995; and
$22,500 in the first quarter of 1996.
b
Clarkson Lumber was required to estimate its income tax liability for the current tax year and pay four quarterly estimated
tax installments during that year. The first $50,000 of pretax profits were taxed at a 15% rate; the next $25,000 were taxed
at a 25% rate; the next $25,000 were taxed at a 34% rate; and profits in excess of $100,000 but less than $335,000 were
taxed at a 39% rate.
c
Net sales
Cost of goods sold:
Beginning inventory
Purchases
1995
$ ('000s)
$ 4,519
$
Ending inventory
Total cost of goods sold
Gross Profit
Operating expenses
Earnings before interest and taxes
Purchase Discountsa
Interest expenseb
Net income before income taxes
Provision for income taxesc
Net income
432
3,579
4,011
587
3,424
1,095
940
155
56
99
22
77
1996
$ ('000s)
$ 5,500
$
$
587
4,277 (77.77% of sales)
4,864
704
4,160 (75.64% of sales)
1,340
1,150 (20.91% of sales)
190
69
93
167
49
118
Assume purchase discounts of 2% taken on all purchases. The amount has been shown separately instead of accumulating
Clarkson Lumber was required to estimate its income tax liability for the current tax year and pay four
quarterly estimated tax installments during that year. The first $50,000 of pretax profits were taxed at a 15%
rate; the next $25,000 were taxed at a 25% rate; the next $25,000 were taxed at a 34% rate; and profits in
excess of $100,000 but less than $335,000 were taxed at a 39% rate.
c
Exhibit 2
dollars)
Balance Sheets at December 31, 1993-1995, and March 31, 1996 (thousands of
1993
Cash
Accounts receivable, net
Inventory
Current assets
Property, net
Total Assets
1994
$43
306
337
$686
233
$919
1995
$52
411
432
$895
262
$1,157
$0
0
0
213
42
$60
100
0
340
45
20
$275
20
$565
140
0
120
100
$415
504
$785
372
$919
$1,157
1st Quarter
1996
$56
606
587
$1,249
388
$1,637
$53
583
607
$1,243
384
$1,627
$390
100
127
376
75
20
$1,088
100
0
$1,188
449
$399
100
123
364
67
20
$1,073
100
0
$1,173
454
$1,637
$1,627
Interest is computed on the average outstanding loan balance at the rate of prime plus 2%.
Interest is fixed at 10.0% times the outstanding balance; the term loan is secured by the fixed assets and is repayable in
semiannual installments of $10,000.
c
1996
$ ('000s)
Assets
Cash
Accounts receivable, net
Inventory
Current assets
Property, net
Total Assets
56
606
587
$1,249
388
$1,637
77
655
704
$1,436
442
$1,878
100
127
376
75
20
390
$1,088
100
$1,188
449
117
80
20
1,014
$1,231
80
$1,637
$1,878
(1.40% of sales)
(11.90% of sales)
(8.03% of sales)
$1,311
567
1995
$ ('000s)
(195.00)
(155.00)
36.00
30.00
127.00
77.00
(2.00) $
(29.00)
(126.00)
(29.00) $
(126.00)
(20.00)
60.00
(200.00)
200.00
$
$
(80.00)
40.00
9.00
(20.00)
330.00
(100.00)
$
$
210.00
4.00
Exhibit 3
Percent of sales:
Cost of goods
Operating expense
Cash
Accounts receivable
Inventory
Fixed assets, net
Total Assets
Percent of Total Assets:
Current liabilities
Long-term liabilities
Equity
Current ratio
Return on sales
Return on assets
Return on equity
Low-Profit Outletsa
High-Profit Outletsa
76.9%
22.0
1.3
13.7
12.0
12.1
39.1
75.1%
20.6
1.1
12.4
11.6
9.2
34.3
52.7%
34.8
12.5
1.31
(0.7%)
(1.8%)
(14.3%)
29.2%
16.0
54.8
2.52
4.3%
12.2%
22.1%
Defined as the bottom 25% and as the top 25% of all contributors, based on return on sales.