Arlington Company Has Prepared the Following Common-Size Income Statement to Compare

question 67

True/False

Arlington Company has prepared the following common-size income statement to compare its performance with industry averages:
$$\begin{array} { | l | r | r | } \hline & \text { Arlington Co. } & \text { Industry } \\\hline \text { Revenues } & 100.0 \% & 100.0 \% \\\hline \text { Cost of sales } & 43.8 \% & 39.7 \% \\\hline \text { Gross profit } & 56.2 \% & 60.3 \% \\\hline \text { Selling and general expenses: } & & \\\hline \text { Sales and marketing expense } & 18.1 \% & 21.4 \% \\\hline \text { General and administrative expense } & 12.0 \% & 14.2 \% \\\hline \text { Research and development expense } & 4.1 \% & 4.0 \% \\\hline \text { Total selling and general expenses } & 34.2 \% & 39.6 \% \\\hline & & \\\hline \text { Profit before tax } & 22.0 \% & 20.7 \% \\\hline \text { Income taxexpense } & 4.4 \% & 4.2 \% \\\hline \text { Profit (loss) } & 17.6 \% & 16.5 \% \\\hline\end{array}$$
Based on the above data,an analyst could conclude that Arlington achieves better results than the industry average by controlling its selling and general expenses more effectively.

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Definitions:

Notes Payable

A written agreement where the borrower promises to pay back a specified sum to the lender by a certain date.

Interest Expense

The amount a company has to spend over time for taking out loans.

Sales Taxes Payable

This account reflects the amount of sales tax collected from customers by a company on behalf of state and local governments, which is to be remitted to those governments.

Remittance

The process of sending payment from one party to another, often from a buyer to a seller or from an employer to an employee.