Common Sized Income Statement for 2012 Common Sized Income Statement ($’000) Particulars Amount % Sales Revenue 2,200 100% Less Cost of Goods sold 1,420 65% Gross Profit 780 35% Less: Operating Expenses Selling expense 300 14% G&A 270 12% Depreciation 30 1% Total Operating Expenses 600 27% Operating profits 180 8% Less: Interest Expense 29 1% Net Profit Before tax 151 7% Less: Taxes (30%) 45 2% Net Profit After Tax (Earnings Available to Common Stockholders) 106 5%
Proforma Income Statement – Project Sales Revenue ($2.75 million) Particulars Amount Sales Revenue 2,750 Less Cost of Goods sold 1,775 Gross Profit 975 Less: Operating Expenses Selling expense 375 G 338 Depreciation 38 Total Operating Expenses 750 Operating profits 225 Less: Interest Expense 36 Net Profit Before tax 189 Less: Taxes (30%) 57 Net Profit After Tax (Earnings Available to Common Stockholders) 132
Use the data from above.
There is a big political debate happening in the country. The lead candidate believes that those with the highest incomes should pay higher taxes (corporate or individual doesn’t matter). He’s elected president and in fact does raise taxes. If the companies projected sales revenue of 2.75 million causes the average corporate income tax rate to increase to 45%, what is the impact on the company’s net profit after taxes?
Knowing the impact to the net profit after taxes (you, as the company’s manager), do you want to increase sales revenue as projected or do you discourage growth? Explain.
Which political party is most likely to stifle business growth by raising taxes? Explain.