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    Vertical analysis of balance sheets

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    Problems: Set A
    P13-1A Here are comparative statement data for East Company and West Company, two competitors. All balance sheet data are as of December 31, 2007, and December 31, 2006.

    East Company West Company
    2007 2006 2007 2006
    Net sales $1,849,035 $546,000
    Cost of goods sold 1,080,490 238,000
    Operating expenses 230,000 82,000
    Interest expense 6,800 1,600
    Income tax expense 62,030 31,000

    Current assets 325,975 $312,410 83,336 $ 79,467
    Plant assets (net) 526,800 500,000 139,728 125,812
    Current liabilities 66,325 75,815 35,348 30,281
    Long-term liabilities 113,990 90,000 29,620 25,000
    Common stock, $10 par 500,000 500,000 120,000 120,000
    Retained earnings 172,460 146,595 38,096 29,998

    Instructions:

    (a) Prepare a vertical analysis of the 2007 income statement data for East Company and West Company.

    (b) Comment on the relative profitability of the companies by computing the 2007 return
    on assets and the return on common stockholders' equity ratios for both companies.

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    Solution Preview

    Instructions:

    (a) Prepare a vertical analysis of the 2007 income statement data for East Company and West Company.

    East Company in % West Company in %
    Net sales 1849035 100 546000 100
    Cost of goods sold 1080490 58.44% 238000 43.59%
    Operating expenses 230000 12.44% 82000 15.02%
    Interest expense ...

    Solution Summary

    This provides the steps to prepare the Vertical analysis of balance sheets

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