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Vertical and Horizontal Analysis - Net Income

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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.

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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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See Also This Related BrainMass Solution

Accounting Horizontal and Vertical Analysis

Problem 17-1 (Algorithmic)
Horizontal Analysis for Income Statement

For 2012, Wiglaf Company reported its most significant decline in net income in years. At the end of the year, C.S. Lewis, the president, is presented with the following condensed comparative income statement:
Wiglaf Company

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2011 as the base year. Use the minus sign to indicate a decrease in the "Difference " columns. If required, round to one decimal place.

2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1).

Problem 17-2 (Algorithmic)
Vertical Analysis for Income Statement

For 2012, Othere Technology Company initiated a sales promotion campaign that included the expenditure of an additional $23,000 for advertising. At the end of the year, George Wallace, the president, is presented with the following condensed comparative income statement:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to net sales for each of the years. Enter percentages as whole numbers.

2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

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