Question

1.	Prepare a vertical analysis for Ambrose for both its income statement and balance sheet.
2.	Compare the​ company's profit performance and financial position with the average for the industry.

Ambrose Department Stores, Inc.

Income Statement Compared with Industry Average

Year Ended December 31, 2018

Industry

Ambrose                               Average

Net Sales Revenue                                        $780,000                                100.0 %

Cost of Goods Sold                                          524,940                                     65.8

Gross Profit                                                   255,060                                            34.2

Operating Expenses                                      159,120                                             19.7

Operating Income                                           95,940                                               14.5

Other Expenses                                             7,020                                                  0.4

Net Income                                                $88,920                                              14.1 %

Ambrose Department Stores, Inc.

Balance Sheet Compared with Industry Average

December 31, 2018

Industy

Ambrose

Average

Current Assets

$325,920

70.9 %

Property, Plant, and Equipment, Net

121,920

23.6

Intangible Assets, Net

9,600

0.8

Other Assets

22,560

4.7

Total Assets                                                                   $480,000                                                                   100.0 %

Current Liabilities                                              $219,840

48.1 %

Long-term Liabilities                                            110,400

16.6

Total Liabilities                                                        330,240

64.7

Stockholders' Equity                                              149,760

35.3

Total Liabilities and Stockholders' Equity             $480,000                                                                               100.0 %

Answer 1

1) Under vertical analysis, income statement's all line items will be expressed as a % of total sales of the period concerned. Ambrose Department Stores, Inc. Income Statement Vertical Analysis For Year Ended December 31, 2018 % of Amount Net Sales Net Sales Revenue $780,000 100.00% Cost of Goods Sold $524,940 67.30% Gross Profit $255,060 32.70% Operating Expenses $159,120 20.40% Operating Income $95,940 12.30% Other Expenses $7,020 0.90% Net Income $88,920 11.40% [$780000 / $780000] x 100 [$524940 / $780000] x 100 [$255060 / $780000] x 100 [$159120 / $780000] x 100 ($95940 / $780000] x 100 [$7020 / $780000] x 100 ($88920 / $780000] x 100

Under vertical common size analysis, each line item of a balance sheet is expressed as a % of total assets. Ambrose Department Stores, Inc. Balance Sheet - Verticaly Analysis December 31, 2018 Amount Current assets Property, Plant & Equipment, Net Intangible Assets Other Assets Total Assets $325,920 $121,920 $9,600 $22,560 $480,000 % of Total Assets 67.90% 25.40% 2.00% 4.70% 100.00% [$325920 / $480000] x 100 ($121920 / $480000] x 100 [$9600 / $480000] x 100 ($22560 / $480000] x 100 ($480000 / $480000] x 100 Current liabilities Long-Term liabilities Total Liabilities Stockholders' Equity Total Liabilities and Stockholders' Equity $219,840 $110,400 $330,240 $149,760 $480,000 45.80% 23.00% 68.80% 31.20% 100.00% ($219840 / $480000] x 100 ($110400 / $480000] x 100 ($330240 / $480000] x 100 ($149760 / $480000] x 100 ($480000 / $480000] x 100

Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses Operating Income Other Expenses Net Income Ambrose Department Stores, Inc. Comparison with Industry Average-Income Statement For Year Ended December 31, 2018 Ambrose Industry Performance Analysis 100.0% 100.0% No comments because it is the base for analysis. 67.3% 65.8% Poor performance as cost is higher than industry average. 32.7% 34.2% Poor performance as profit is less than industry average. 20.4% 19.7% Poor performance as expense is higher than industry average. 12.3% 14.5% Poor performance as income is less than industry average. 0.9% 0.4% Poor performance as expense is higher than industry average. 11.4% 14.1% Poor performance as income is less than industry average.

Current assets Property, Plant & Equipment, Net Intangible Assets Other Assets Total Assets Ambrose 67.9% 25.4% 2.0% 4.7% 100.0% Ambrose Department Stores, Inc. Comparison with Industry Average-Balance Sheet For Year Ended December 31, 2018 Industry Performance Analysis 70.9% Firm maintains less current assets which is a good sign due to less working capital requirement. 23.6% Firm maintains more PPE which is a good sign due to more productive investment opportunities. 0.8% Firm maintains ore intangible assets which is a good sign due to more value to the firm. 4.7% In par with the industry average which is a good sign as neither over- nor short-blockage of funds. 100.0% No comments because it is the base for analysis. Current liabilities Long-Term liabilities Total Liabilities Stockholders' Equity Total Liabilities and Stockholders' Equity 45.8% 23.0% 68.8% 31.2% 100.0% 48.1% 16.6% 64.7% 35.3% 100.0% Firm maintains less current liabilities which is not a good sign due to more working capital requirement. Firm maintains more LT liabilities which is not a good sign due to more default risks involved. Firm maintains more total liabilities which is not a good sign due to more default risks involved. Firm maintains less stockholders' equity which is not a good sign due to over dependency on external debts. No comments because it is the base for analysis.