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Vertical and Horizontal Analysis - Net Income

1. The vertical analysis (common-size) percentages for Vallejo Company's sales, cost of goods sold, and expenses are listed here.

Vertical Analysis 2012 2011 2010
Sales 100 % 100 % 100 %
Cost of goods sold 62.7 64.2 66.1
Expenses 24.4 26.8 28.3

Did Vallejo's net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for your answer.

2. Horizontal analysis (trend analysis) percentages for Spartan Company's sales, cost of goods sold, and expenses are listed here.

Horizontal Analysis 2012 2011 2010
Sales 96.2 % 104.8 % 100.0 %
Cost of goods sold 101.0 98.0 100.0
Expenses 105.6 95.4 100.0

Explain whether Spartan's net income increased, decreased, or remained unchanged over the 3-year period.

Solution Summary

The solution performs vertical as well as horizontal analysis to find out whether net income increased in the coming years when compared.

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