E14-13 Horizontal analysis-income statement
Data for Verifine Designs, Inc. follow:
Verifine Designs INC- Comparative Income Statement -Years ended December 31, 2011 and 2010
2011 2010
Net sales revenue $428,950 $371,000
Expenses:
Cost of goods sold $203,850 $189,350
Selling and general expenses 99,350 93,000
Other expense 6,750 5,000
Total expenses 309,950 287,350
Cash and cash equivalents $119,000 $83,650
Requirements:
1. Prepare a horizontal analysis of the comparative income statement of Verifine Designs Ince. Round percentage changes to the nearest one-tenth percent (three decimal places)
2. Why did 2011 net income increase by a higher percentage than net sales revenue?
E14-15 Vertical analysis of a balance sheet- Eta Graphics has the following data:
Eta Graphics Inc.- Balance sheet- December 31,2010
Assets
Total currents assets $41,870
Property,plant and equipment, net 206,870
Other assets 34,870
Total assets $283,610
Liabilities
Total current liabilities $47,870
Long term debt 107,870
Total liabilities 155,740
Stockholder’s Equity
Total stockholders equity 127,870
Total liabilities and stockholders equity $283,610
Requirement:
1. Perform a vertical analysis of Eta’s balance sheet.
P14-23A Common size statements, analysis of profitability and financial position and comparison with the industry
The Russell Department s Stores, Inc. chief executive officer has asked you to compare the company’s profit performance and financial position with the average for the industry. The CEO has given you the company’s income statement and balance sheet as well as the industry average data for retailers.
Russell Department Stores Inc. Income Statement compared with Industry Average –Year ended December 31, 2010
Russell Industry Average
Net Sales $777,000 100.0%
Cost of goods sold 523,698 65.8
Gross Profit 253,302 34.2
Operating expenses 162,393 19.7
Operating income 90,909 14.5
Other expenses 7,770 0.4
Net Income $83,139 14.1%
Russell Department Stores Inc. Balance Sheet compared with Industry Average –December 31, 2010
Russell Industry Average
Current Assets $3330,750 70.9%
Fixed Assets, net 123,480 23.6
Intangible assets, net 9,800 0.8
Other assets 25,970 4.7
Total assets $490,000 100.0%
Current liabilities $227,360 48.1%
Long term liabilities 111,720 16.6
Stockholders equity 150,920 35.3
Total Liabilites $490,000 100.0%
Requirements:
1. Prepare a common-size income statement and balance sheet for Russell. The first column of each statement should present Russell’s common-size statement and the second column, the industry averages.
2. For the profitability analysis, compute Russell’s (a) ration of gross profit to net sales, (b0 ration of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Russells profit performance better or worse than the industry average?
3. For the analysis of financial position, compute Russells (a) ration of current assets to total assets and (b)ratio of stockholders equity to total assets. Compare these ratios with the industry averages. Is Russells financial position better or worse than the industry averages?
