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Business Accounting Connect Access Card for Financial Accounting: Information and Decisions

Vertical analysis is one of the tools of the financial statements analysis. This analysis is performed to present the statement in percentage form taking a unique item as base figure. A vertical analysis of income statement is done by calculating the percentage of each amount taking the sales revenue as basis. To calculate: the common size percentage income statement and comment on the improvement in the most recent year. Common size percentage income statement is as follows: 2016 2015 Common Size % Common Size % A/740000 B/625000 Sales 100.0% 100.0% Cost of goods sold 75.7% 46.5% Gross profit 24.3% 53.5% Operating expenses 17.3% 35.0% Net income 7.0% 18.5% The company’s situation has not improved in the recent year. Common size percentage income statement is calculated as follows: 2016 2015 Amount Common Size % Amount Common Size % A A/740000 B B/625000 Sales 7,40,000 100.0% 6,25,000 100.0% Cost of goods sold 5,60,300 75.7% 2,90,800 46.5% Gross profit 1,79,700 24.3% 3,34,200 53.5% Operating expenses 1,28,200 17.3% 2,18,500 35.0% Net income 51,500 7.0% 1,15,700 18.5% The above common size income statement shows that net income was 18.5% of sales in the year 2015 and it is just 7% of the sales in the recent year 2016. Hence it is showing decreasing profitability. Therefore the company’s situation has not improved in the recent year.

Vertical analysis is one of the tools of the financial statements analysis. This analysis is performed to present the statement in percentage form taking a unique item as base figure. A vertical analysis of income statement is done by calculating the percentage of each amount taking the sales revenue as basis. To calculate: the common size percentage income statement and comment on the improvement in the most recent year. Common size percentage income statement is as follows: 2016 2015 Common Size % Common Size % A/740000 B/625000 Sales 100.0% 100.0% Cost of goods sold 75.7% 46.5% Gross profit 24.3% 53.5% Operating expenses 17.3% 35.0% Net income 7.0% 18.5% The company’s situation has not improved in the recent year. Common size percentage income statement is calculated as follows: 2016 2015 Amount Common Size % Amount Common Size % A A/740000 B B/625000 Sales 7,40,000 100.0% 6,25,000 100.0% Cost of goods sold 5,60,300 75.7% 2,90,800 46.5% Gross profit 1,79,700 24.3% 3,34,200 53.5% Operating expenses 1,28,200 17.3% 2,18,500 35.0% Net income 51,500 7.0% 1,15,700 18.5% The above common size income statement shows that net income was 18.5% of sales in the year 2015 and it is just 7% of the sales in the recent year 2016. Hence it is showing decreasing profitability. Therefore the company’s situation has not improved in the recent year.

Solution Summary: The author explains that a vertical analysis of income statement is done by calculating the percentage of each amount taking the sales revenue as basis.

Connect Access Card for Financial Accounting: Information and Decisions

Connect Access Card for Financial Accounting: Information and Decisions

8th Edition

ISBN: 9781259662966

Author: John J Wild

Publisher: McGraw-Hill Education

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Chapter 13 Solutions

Connect Access Card for Financial Accounting: Information and Decisions

Ch. 13 - Explain the difference between financial reporting...Ch. 13 - Prob. 2DQ Ch. 13 - Prob. 3DQ Ch. 13 - Prob. 4DQ Ch. 13 - Prob. 5DQ Ch. 13 - Prob. 6DQ Ch. 13 - Prob. 7DQ Ch. 13 - Prob. 8DQ Ch. 13 - Prob. 9DQ Ch. 13 - Prob. 10DQ

Ch. 13 - Prob. 11DQ Ch. 13 - Prob. 12DQ Ch. 13 - Prob. 13DQ Ch. 13 - Prob. 14DQ Ch. 13 - Prob. 15DQ Ch. 13 - Prob. 16DQ Ch. 13 - Prob. 17DQ Ch. 13 - Financial reporting Cl. Which of the following...Ch. 13 - Prob. 2QS Ch. 13 - Prob. 3QS Ch. 13 - Prob. 4QS Ch. 13 - Prob. 5QS Ch. 13 - Prob. 6QS Ch. 13 - Prob. 7QS Ch. 13 - Prob. 8QS Ch. 13 - Prob. 9QS Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Risk and capital structure analysis P3 Refer to...Ch. 13 - Prob. 10E Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 1PSA Ch. 13 - Prob. 2PSA Ch. 13 - Prob. 3PSA Ch. 13 - Prob. 4PSA Ch. 13 - Prob. 5PSA Ch. 13 - Prob. 6PSA Ch. 13 - Prob. 1PSB Ch. 13 - Prob. 2PSB Ch. 13 - Prob. 3PSB Ch. 13 - Prob. 4PSB Ch. 13 - Prob. 5PSB Ch. 13 - Prob. 6PSB Ch. 13 - Prob. 13SP Ch. 13 - Prob. 1BTN Ch. 13 - Prob. 2BTN Ch. 13 - Prob. 3BTN Ch. 13 - Prob. 7BTN Ch. 13 - Prob. 9BTN

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