Preparing and Interpreting a Schedule for Horizontal and Vertical Analyses
The average price of a gallon of gas in 2008 jumped $0.45 (16 percent) from $2.81 in 2007 (to $3.26 in 2008). Let’s see whether these changes are reflected in the income statement of Chevron Corporation for the year ended December 31, 2008 (amounts in billions).
| 2008 | 2007 |
Total Revenues | $273 | $221 |
Costs of Crude Oil and Products | 171 | 133 |
Other Operating Costs | 59 | 56 |
Income before Income Tax Expense | 43 | 32 |
Income Tax Expense | 19 | 13 |
Net Income | $ 24 | $ 19 |
Required:
1.Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages (rounded to one decimal place). How did the change in gas prices compare to the changes in Chevron Corp.’s total revenues and costs of crude oil and products?
2.Conduct a vertical analysis by expressing each line as a percentage of total revenues (round to one decimal place). Excluding income tax and other operating costs, did Chevron earn more profit per dollar of revenue in 2008 compared to 2007?
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