Concept explainers
Draft a common size income statement and
Explanation of Solution
Vertical analysis:
The comparison of an item of a financial statement against the total amount of the same financial statement, to determine the relation between the two items, is referred to as vertical analysis.
The percentage in the statement is calculated by:
Common size income statement is as follows:
C-C Company and Subsidiaries | ||||
Common size income statement | ||||
For the year ended December 31st | ||||
Particulars | 2017 | 2016 | ||
Amount ($) | % | Amount ($) | % | |
Net operating revenues | 35,410 | 100% | 41,863 | 100% |
Cost of goods sold | (13,256) | 37.4% | (16,465) | 39.3% |
Gross profit | 22,154 | 62.6% | 25,398 | 60.7% |
Selling and administrative expense | (12,496) | 35.3% | (15,262) | 36.5% |
Other operating charges | (2,157) | 6.1% | (1,510) | 3.6% |
Operating income | 7,501 | 21.2% | 8,626 | 20.6% |
Interest income | 677 | 1.9% | 642 | 1.5% |
Interest expense | 841 | 2.4% | 733 | 1.8% |
Equity income (Loss) – Net | 1,071 | 3.0% | 835 | 2.0% |
Other income (Loss) – Net | (1,666) | (4.7%) | (1,234) | (2.9%) |
Income from continuing operations before income taxes | 6,742 | 19.0% | 8,136 | 19.4% |
Income taxes from continuing operations | (5,560) | 15.7% | (1,586) | 3.8% |
Net income from continuing operations | 1,182 | 3.3% | 6,550 | 15.6% |
Income from discontinued operations | 101 | 0.3% | - | 0.0% |
Consolidated net income | 1,283 | 3.6% | 6,550 | 15.6% |
Common size balance sheet is as follows:
C-C Company and Subsidiaries | ||||
Common size balance sheet | ||||
For the year ended December 31st | ||||
Particulars | 2017 | 2016 | ||
Amount ($) | % | Amount ($) | % | |
Assets | ||||
Cash and cash equivalents | 6,006 | 6.8% | 8,555 | 9.8% |
Short term investments and marketable securities | 14,669 | 16.7% | 13,646 | 15.6% |
Trade | 3,667 | 4.2% | 3,856 | 4.4% |
Inventories | 2,655 | 3.0% | 2,675 | 3.1% |
Prepaid expenses and other current assets | 9,548 | 10.9% | 5,278 | 6.0% |
Total current assets | 36,545 | 41.6% | 34,010 | 39.0% |
Equity method investments | 20,856 | 23.7% | 16,260 | 18.6% |
Other investments | 1,096 | 1.2% | 989 | 1.1% |
Property, plant and equipment – Net | 8,203 | 9.3% | 10,635 | 12.2% |
16,636 | 18.9% | 21,128 | 24.2% | |
Other assets | 4,560 | 5.2% | 4,248 | 4.9% |
Total assets | 87,896 | 100% | 87,270 | 100% |
Liabilities and equity | ||||
Accounts payable and accrued expenses | 8,748 | 10% | 9,490 | 10.9% |
Loans and notes payable | 13,205 | 15.0% | 12,498 | 14.3% |
Current maturities of long term debt | 3,298 | 3.8% | 3,527 | 4.0% |
Accrued income taxes | 410 | 0.5% | 307 | 0.4% |
Other current liabilities | 1,533 | 1.7% | 710 | 0.8% |
Total current liabilities | 27,194 | 30.9% | 26,532 | 30.4% |
Long term debt | 31,182 | 35.5% | 29,684 | 34.0% |
Other liabilities | 8,021 | 9.1% | 4,081 | 4.7% |
2,522 | 2.9% | 3,753 | 4.3% | |
Total liabilities | 68,919 | 78.4% | 64,050 | 73.4% |
Total equities | 18,977 | 21.6% | 23,220 | 26.6% |
Total liabilities and equities | 87,896 | 100% | 87,270 | 100% |
Interpretation:
As per the income statement of C-C Company and subsidiaries for the year 2016 and 2017, the consolidated net income for both the periods vary significantly. The common size percentage of net income in terms of net operating revenues for 2016 is 15.6% whereas the same metric for 2017 is 3.6%. Income tax from continuing operations has increased from $1.586 in 2016 to $5.560 in 2017. As a result, the net income from continuing operations had a significant impact in 2017.
As per the balance sheet of C-C Company and subsidiaries for the year 2016 and 2017, equity has decreased from $23,220 in 2016 to $18,977 in 2017. It is desirable for profitable business to grow their equity annually. The total assets and liabilities of the company have also increased in 2017.
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