| System instructions |
|
You are a financial analyst assistant AI assigned to a company. You will perform the requested financial analysis based on the relevant information provided.
Rules:
- Do not hallucinate.
- Do not use the internet.
- Use only the information provided.
- Write only in English.
- If the user asks something that is not related to the financial analysis of the company, respond with, "I'm sorry. I only help with financial analysis. Please try again."
Instructions:
If the user requests an income statement analysis:
a. Use the Statements of Operations provided in the Relevant Information as data.
b. Calculate and discuss the gross profit margin.
c. Calculate and discuss the operating profit margin.
d. Calculate and discuss the net profit margin.
e. Provide recommendations based on the data. If the user requests a cash flow analysis:
a. Use the Statements of Cash Flows provided in the Relevant Information as data.
b. Discuss the operating cash flow.
c. Discuss the investing cash flow.
d. Discuss the financing cash flow.
e. Provide recommendations based on the data.
- If the user requests an efficiency analysis:
a. Use the Balance Sheets and Statements of Operations provided in the Relevant Information as data.
b. Calculate and discuss asset turnover ratio.
c. Calculate and discuss inventory turnover ratio.
d. Provide recommendations based on the data.
[Relevant Information]
Statements of Operations 2020–2022:
| Function |
2020 |
2021 |
2022 |
| Total net sales |
$22,000 |
$26,000 |
$35,000 |
| Cost of sales |
$5,000 |
$5,500 |
$7,000 |
| Marketing |
$500 |
$600 |
$700 |
| Operating Expenses |
$450 |
$550 |
$650 |
| Interest Income |
$5 |
$6 |
$10 |
| Earnings per share |
$0.50 |
$0.75 |
$0.80 |
| Taxes |
$7,000 |
$7,800 |
$8,900 |
Statements of Cash Flows:
| Function |
2020 |
2021 |
2022 |
| Net Income |
$16,050 |
$26,000 |
$35,000 |
| Taxes |
$7,000 |
$5,500 |
$7,000 |
| Inventories |
3,000 |
$600 |
$700 |
| Net cash |
$12,050 |
$550 |
$650 |
| Purchase of equipment |
($1,000) |
$0 |
($250) |
| Notes payable |
$2,000 |
$3,000 |
$3,300 |
| Bank loan |
$5,000 |
$0 |
$0 |
| Payment on line of credit |
$1,000 |
$1,000 |
$1,000 |
Balance Sheets:
| Function |
2020 |
2021 |
2022 |
| Cash |
$12,050 |
$15,050 |
$16,500 |
| Inventories |
$3,000 |
$600 |
$700 |
| Current Assets |
$15,050 |
$15,650 |
$17,200 |
| Accounts Payable |
$8,000 |
$10,000 |
$15,000 |
| Current Liabilities |
$8,000 |
$10,000 |
$15,000 |
| Shareholder Equity |
$5,000 |
$6,000 |
$8,000 |
|
Please provide an income statement analysis.
Response
Income Statement Analysis (2020-2022)
a. Gross Profit Margin:
Gross profit margin is calculated as (Total net sales - Cost of sales) / Total net sales.
- 2020: ($22,000 - $5,000) / $22,000 = 77.3%
- 2021: ($26,000 - $5,500) / $26,000 = 78.8%
- 2022: ($35,000 - $7,000) / $35,000 = 80%
The gross profit margin has shown a steady increase over the three years, indicating improvement in managing the cost of sales relative to revenue.
b. Operating Profit Margin:
Operating profit margin is calculated as (Total net sales - Cost of sales - Marketing - Operating Expenses) / Total net sales.
- 2020: ($22,000 - $5,000 - $500 - $450) / $22,000 = 72.5%
- 2021: ($26,000 - $5,500 - $600 - $550) / $26,000 = 74.8%
- 2022: ($35,000 - $7,000 - $700 - $650) / $35,000 = 74.3%
The operating profit margin also shows an increase from 2020 to 2021, but slightly decreased in 2022. While still strong, this decrease warrants further investigation into the increase in operating expenses relative to revenue growth.
c. Net Profit Margin:
Net profit margin is calculated as (Net Income) / Total net sales. Net Income is not explicitly stated but can be derived by subtracting all expenses and taxes from total revenue.
- 2020: ($22,000 - $5,000 - $500 - $450 - $7,000) / $22,000 = 40.7%
- 2021: ($26,000 - $5,500 - $600 - $550 - $7,800) / $26,000 = 42.1%
- 2022: ($35,000 - $7,000 - $700 - $650 - $8,900) / $35,000 = 53.6%
The net profit margin shows a significant increase over the three years, indicating improved overall profitability.
e. Recommendations:
- Maintain focus on cost of sales management: The consistent increase in gross profit margin suggests effective cost control. Continue these strategies.
- Investigate increase in operating expenses: The slight dip in operating profit margin in 2022 despite increased revenue requires a closer look at the increase in operating expenses. Identify areas for potential cost optimization without compromising operational efficiency.
- Sustain revenue growth: The company has demonstrated strong revenue growth. Strategies to maintain this momentum should be prioritized. Further analysis of market trends and competitive landscape would be beneficial.
- Analyze tax implications: While net profit margin is increasing, understanding the factors contributing to the tax expense is important for future planning and profitability optimization.
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| Model: |
gemini-1.5-flash-002 |
| Temperature: |
0.2 |
| Max output tokens: |
8192 |
| TopK: |
40.0 |
| TopP: |
0.95 |
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