Question

he average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Required: 1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. 2-b. Excluding income tax and other operating costs, did Insignia earn more profit per dollar of revenue in 2015 compared to 2014?

Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). (Decreases should be indicated by a minus sign. Enter your answers in billions (i.e., 10,000,000,000 should be entered as 10). Round percentage values to 1 decimal place.)

	INSIGNIA CORPORATION Income Statements (amounts in billions) For the Year Ended December 31 Change in 2015 2014 Dollars Percentage Revenues $125 $213 $(88) (41.3) % Cost of Crude Oil and Products 63 122 (59) (48.4) % Other Operating Costs 59 52 7 13.5 % Income before Income Tax Expense 3 39 (36) (92.3) % Income Tax Expense 0 26 (26) (100.0) % Net Income $3 $13 $(10) (76.9) %

Conduct a vertical analysis by expressing each line as a percentage of total revenues. (Round percentage values to 1 decimal place.)

	INSIGNIA CORPORATION Income Statements (amounts in billions) For the Year Ended December 31 2015 2014 Revenues $125 % $213 % Cost of Crude Oil and Products 63 % 122 % Other Operating Costs 59 % 52 % Income before Income Tax Expense 3 % 39 % Income Tax Expense 0 % 26 % Net Income $3 % $13 %

Excluding income tax and other operating costs, did Insignia Corporation earn more profit per dollar of revenue in 2015 compared to 2014?

	Yesradio button unchecked1 of 2 Noradio button checked2 of 2

Answer 1

1	Horizontal Analysis
		2015	2014	Difference - Amount	Difference - Percent
		(i)	(ii)	(iii) = (i) - (ii)	(iii) / (ii)
	Revenue	$           125	$           213	$                                 -88	-41.3%
	Cost of Crude oil and products	$             63	$           122	$                                 -59	-48.4%
	Other operating costs	$             59	$             52	$                                     7	13.5%
	Income before Income tax	$               3	$             39	$                                 -36	-92.3%
	Income tax expense	$              -	$             26	$                                 -26	-100.0%
	Net Income	$               3	$             13	$                                 -10	-76.9%
2	Vertical Analysis
		2015		2014
		(i)	(i) / $125	(ii)	(ii) / $213
	Revenue	$           125	100.0%	$                                213	100.0%
	Cost of Crude oil and products	$             63	50.4%	$                                122	57.3%
	Other operating costs	$             59	47.2%	$                                  52	24.4%
	Income before Income tax	$               3	2.4%	$                                  39	18.3%
	Income tax expense	$              -	0.0%	$                                  26	12.2%
	Net Income	$               3	2.4%	$                                  13	6.1%
3	No