Question

Present, describe and illustrate the use of vertical analyses. Form numerical examples using two comparative companies. Form clear conclusion on the value gained from the analysis.

Answer 1

not company Income statement year $ 500, $500,000 Yen a $425.000 $123,250 $301,750 Year 1 Sales $ 400,000 Cost of Goods sold 9120.000 Gross Profit $280,000 $ 200,000 $ 300,000 $ 300, 47000 5 000 & 150.000 $ 25,000 Salaries $ 95,000 Rent $25,000 Marketing $20,000 Utilities 5000 other expenses $ 7500 Total Expenses $15 2 500 $ 970004 150, $ 25ooo $ 25, $ 20000 $ 50,00 $ 5000 $ 5,000 $10000 $ 8000 $157 000 $ 238000 $ 62,000 Net Income $127500 $144 750 tiut we should review the income statements as they re presented in dollar teens, the combaths sales have company grown over this time period, but net income is down sharply en year three solaries and marketing ,میهما من المنفعها ومهنة عيهم كمرمره auen the increased coles. Provence, these expensee don't at first glance, appeal loege enough to alcourt or the decline in net income to see Practly what's happening, we to dig deeper weill have

nd Aetelma A the sale or er in year one ical analy To do that we'll create a "CANNE size income statement veltical analys to and pep raup po ench Macau come latement, we duro the diven minber by the compan you that year. By doing this, we'll buil new income statement that shows coch account as a percentage of the sale that year. As an enaipeol in year we'll duide the coupantsolaries expense, $ 95000 by it sabes for that year, $400000 That result 24% neill appear on the vertical analysis table beside salarice for year one. Here's how that table should look when allo гч: Авс сорогч, Vohu Year i eall year3 - sales 100% 100% 100%. Cost of Goods sold 5 30. 29% 4010 Grou Profit - 70-7. 71% 6ol. 24% salarles 234. 30r/. Rent - 6 . 67. 51, 5%. Marke 10. chillitie a other expenses 2. 2% 20%. 380 374. 48. Total Expenses 32% 34% 12 % Net Income

the vertical analysis confuns what we already observed in our initial review of the income statement, and it also reveals для чолі Вс LompЧА income decune costs of goods cold.
Another powerful application of a vertical analysis is to compare two or more companies of different sizes.