Question

1. Perform a 2019 vertical analysis and a 2018-2019 horizontal analysis of the income statements for DMZ, LLC provided below. What areas of concern, if any, do these analyses highlight? Explain your answer. DMZ, LLC Income Statements For the Years Ended December 31, 2018, and December 31, 2019 2018 2019 $1,045,623 $1,125,844 Gross sales Less: Returns 10,546 10,995 Net sales 1,035.077 1,114,849 Less: Cost of goods sold 425.689 431.258 683,591 Gross profit 609,388 Less: Operating expenses Operating income Less: Interest 308,119 313.774 301,269 369,817 12,251 $289,018 11,602 $358,215 Net income

Answer 1

Horizontal Analysis Vertical Analysis Working Note DMZ LLC DMZ LLC 2019% 2019 2018 Increase Decrease Gross Sales Gross Sales 1125844 100% Gross Sales 1045623 100% 1125844 1045623 80221 Less:Returns 1% 1% 10995 10546 449 Less:Returns 10995 Less:Returns 10546 1035077 99 % Net Sales 1114849 99% Net Sales Net Sales 1114849 1035077 79772 Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Operating Income Less: Interest Net Income Less: Cost of Goods Sold Less: Cost of Goods Sold 5569 431258 38% 425689 41% 431258 425689 683591 Gross Profit 683591 61% Gross Profit 609388 58% 609388 74203 Less: Operating Expenses 313774 28% Less: Operating Expenses 308119 29% 313774 308119 5655 369817 33% 301269 29% Operating Income Operating Income 369817 301269 68548 1% 11602 1% 11602 12251 649 Less: Interest Less: Interest 12251 69197 Net Income 358215 32% 289018 28% 358215 289018 Net Income The Company looks a healthy company. Its Gross Profit has improved and same is the case with Net Profit. Interest Liability is decreasing so Company is able to pay its debts well. Analysis shows that Company is progressive and profitability is increasing

Working Note Horizontal Analysis DMZ LLC 2019 2018 Increase Decrease Gross Sales 1125844 1045623 80221 Less:Returns 10995 10546 449 Net Sales 1114849 1035077 79772 Less: Cost of Goods Sold 431258 425689 5569 Gross Profit 683591 609388 74203 Less: Operating Expenses 313774 308119 5655 Operating Income 369817 301269 68548 Less: Interest 11602 12251 649 Net Income 358215 289018 69197 Vertical Analysis DMZ LLC 2019 % Gross Sales 1125844 100% Less:Returns 10995 1% Net Sales 1114849 99% Less: Cost of Goods Sold 431258 38% Gross Profit 683591 61% Less: Operating Expenses 313774 28% Operating Income 369817 33% Less: Interest 11602 1% Net Income 358215 32% Gross Sales Less:Returns Net Sales Less: Cost of Goods Sold Gross Profit Less: Operating Expenses Operating Income Less: Interest Net Income 1045623 100% 10546 1% 1035077 99% 425689 41% 609388 58% 308119 29% 301269 29% 12251 1% 289018 28% The Company looks a healthy company. Its Gross Profit has improved and same is the case with Net Profit. Interest Liability is decreasing so Company is able to pay its debts well. Analysis shows that Company is progressive and profitability is increasing

% is (Line Item/Sales)*100