Share
Explore BrainMass

Vertical analysis of balance sheets

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.

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

$2.19