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Attached is the income statement for a casino. Three years are presented 2007-2009. You will notice they have two line items for Revenue ("sales"), use the combined figure if you need it (for example, for 2009, Revenue would be $232,799,000 (note you add three zeros as the statement says at the top "in thousands").
Using the technique of "common-sized analysis" discuss how well or badly the casino controlled two expense items: "Gaming" and "General & administrative".
Calculations need to be shown
Homework Answers
The calculation used for common-size is
= (individual item / total revenue) * 100
| amount ($000) | common-size in percent | |||||
| revenues: | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 |
| gaming | 213855 | 219878 | 224760 | 91.86% | 91.95% | 92.74% |
| other operating | 18944 | 19254 | 17606 | 8.14% | 8.05% | 7.26% |
| total revenue | 232799 | 239132 | 242366 | 100.00% | 100.00% | 100.00% |
| expenses: | ||||||
| gaming | 175785 | 169360 | 166040 | 75.51% | 70.82% | 68.51% |
| other operating | 14758 | 16101 | 15268 | 6.34% | 6.73% | 6.30% |
| general and administrative | 6678 | 6317 | 6319 | 2.87% | 2.64% | 2.61% |
| impairment charges | 2177 | 0.94% | 0.00% | 0.00% | ||
| depreciation | 11939 | 10849 | 7843 | 5.13% | 4.54% | 3.24% |
| total expenses | 211337 | 202627 | 195470 | 90.78% | 84.73% | 80.65% |
| operating income | 21462 | 36505 | 46896 | 9.22% | 15.27% | 19.35% |
| interest expense | 2376 | 3484 | 2741 | 1.02% | 1.46% | 1.13% |
| earnings before tax | 19086 | 33021 | 44155 | 8.20% | 13.81% | 18.22% |
| income taxes | 7809 | 13510 | 18070 | 3.35% | 5.65% | 7.46% |
| net earnings | 11277 | 19511 | 26085 | 4.84% | 8.16% | 10.76% |
The gaming expense shows an increasing trend. It increased from 68.51% in 2007 to 70.82% in 2008 and further increased to 75.51%. It seems that the company has not control over the gaming expenses. It needs to take some actions to control it.
However, general and administrative expenses were stable for the three periods. For 2007 it was 2.61%, 2008 2.64% and 2009 2.87%. So it quite evident that, company was able to control its general and administrative expenses.
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