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Vertical Analysis

Instructions: Prepare a schedule showing a vertical analysis for 2009 and 2008.

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GALLUP CORPORATION
Operating Data

2009 2008
Sales $750,000 $600,000
Cost of goods sold 465,000 390,000
Selling expenses 120,000 72,000
Administrative expenses 60,000 54,000
Income tax expense 33,000 24,000
Net income 72,000 60,000

Instructions: Prepare a schedule showing a vertical analysis for 2009 and 2008.

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GALLUP CORPORATION

2009 % of sales 2008 % of sales
Sales $750,000 100% $600,000 100%
Cost of goods sold 465,000 62% 390,000 65%
Selling expenses 120,000 16% 72,000 12%
Administrative expenses 60,000 8% 54,000 9%
Income tax expense 33,000 4% 24,000 4%
Net income 72,000 10% 60,000 10%

Vertical analysis of an income statement results in every income statement amount being presented as a percentage of sales. If sales were $1,000,000 ...

Solution Summary

The cited solution provides a good explanation of vertical analysis. After completion of the 2009 and 2008 comparisons, a narrative statement draws some conclusions about the analysis, and then explains how to use the analysis inside a business to improve the income statement.

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