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Vertical Analysis about financial statement analysis techniques
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4- 4 VERTICAL ANALYSIS OF A BALANCE SHEET VERTICAL ANALYSIS OF A BALANCE SHEET Presented on the right is the 2-year comparative balance sheet of Quality Department Store Inc. for 1996 and 1995. 1 Current assets increased $75,000 from 1995 to 1996, they decreased from 59.2% to 55.6% of total assets. 2 Plant assets (net) increased from 39.7% to 43.6% of total assets, and 3 Retained earnings increased from 32.9% to 39.7% of total liabilities and stockholders’ equity. These results reinforce earlier observations that Quality is financing its growth through retention of earnings. Presented on the right is the 2-year comparative balance sheet of Quality Department Store Inc. for 1996 and 1995. 1 Current assets increased $75,000 from 1995 to 1996, they decreased from 59.2% to 55.6% of total assets. 2 Plant assets (net) increased from 39.7% to 43.6% of total assets, and 3 Retained earnings increased from 32.9% to 39.7% of total liabilities and stockholders’ equity. These results reinforce earlier observations that Quality is financing its growth through retention of earnings.
4- 5 VERTICAL ANALYSIS OF AN INCOME STATEMENT VERTICAL ANALYSIS OF AN INCOME STATEMENT Vertical analysis of the 2- year comparative income statement of Quality Department Store Inc. for 1996 and 1995 is shown on the right. 1 Cost of goods sold as a percentage of net sales declined 1% (62.1% versus 61.1%). 2 Total operating expenses declined 0.4% (17.4% versus 17.0%). 3 Net income as a percent of net sales therefore increased from 11.4% to 12.6%. Quality appears to be a profitable enterprise that is becoming more successful. Vertical analysis of the 2- year comparative income statement of Quality Department Store Inc. for 1996 and 1995 is shown on the right. 1 Cost of goods sold as a percentage of net sales declined 1% (62.1% versus 61.1%). 2 Total operating expenses declined 0.4% (17.4% versus 17.0%). 3 Net income as a percent of net sales therefore increased from 11.4% to 12.6%. Quality appears to be a profitable enterprise that is becoming more successful.
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McGraw-Hill/Irwin © The McGraw-Hill Companies, Inc., 20 4- 13
Comparative Balance Sheets December 31, Common-size Percents* 2003 2002 2003 2002 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 67,000 $ 44, Notes payable 3,000 6, Total current liabilities $ 70,000 $ 50, Long-term liabilities: Bonds payable, 8% 75,000 80, Total liabilities $ 145,000 $130, Shareholders' equity: Preferred stock 20,000 20, Common stock 60,000 60, Additional paid-in capital 10,000 10, Total paid-in capital $ 90,000 $ 90, Retained earnings 80,000 69, Total shareholders' equity $ 170,000 $ 159, Total liabilities and shareholders' equity (^) $ 315,000 $ 289,
Comparative Balance Sheets December 31, Changes 2003 2002
Change
Change Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 67.000 $ 44.000 23.000 52,3% Notes payable 3.000 6.000 -3.000 -50,0% Total current liabilities $ 70.000 $ 50.000 20.000 40,0% Long-term liabilities: Bonds payable, 8% 75.000 80.000 -5.000 -6,3% Total liabilities $ 145.000 $ 130.000 15.000 11,5% Shareholders' equity: Preferred stock 20.000 20.000 0 0,0% Common stock 60.000 60.000 0 0,0% Additional paid-in capital 10.000 10.000 0 0,0% Total paid-in capital $ 90.000 $ 90.000 0 0,0% Retained earnings 80.000 69.700 10.300 14,8% Total shareholders' equity $ 170.000 $ 159.700 10.300 6,4% Total liabilities and shareholders' equity (^) $ 315.000 $ 289.700 25.300 8,7%
4- (^14) CLOVER CORPORATION Comparative Income Statements For the Years Ended December 31, Common-size Percents* 2003 2002 2003 2002 Revenues $ 520,000 $480, Costs and expenses: Cost of sales 360,000 315, Selling and admin. 128,600 126, Interest expense 6,400 7, Income before taxes $ 25,000 $ 32, Income taxes (30%) 7,500 9, Net income $ 17,500 $ 22, Net income per share $ 0.79 $ 1. Avg. # common shares 22,200 22,