On the expense side we have the cost of sales, administrative (G&A), R&D and depreciation (see table to right). These are the budget items controlled by each department during the year. The sales department did an excellent job by reducing costs 25%. Administrative costs were only reduced by 10%, while R&D took a big hit of 37.5%. Hopefully, that one big project to keep running is still being funded at these reduced levels.
And we managed to make a profit both years. In 2007 our earnings before interest and taxes (EBIT) was a respectable 12.1% of sales. Even in the down year we have earned 8.8% of sales. I wonder if we are spending enough on future products (R&D) to maintain this return? We also picked up some interest payments in 2008, which we’ll look at later. Our owners have taken most of the profits in dividends in 2008. Low R&D expenses and big dividends – is there something we should know about the future of Acme? These are certainly the types of questions you should be asking as a manager of this company.