Practice of Horizontal and Vertical Analysis

Activity III

Question # 1: From the condensed balance sheets as on December 31 and income statements
for the years ended December 31, 2003-2005 of M corporation.

Condensed comparative balance sheets as on December 31 2003-2005 (Rs. in millions)

2003 Solution 2003 2004 2004 2005 2005
Assets
Current assets
Inventory 122 122/592*100= 20.6% 170 308
Receivables 130 130/592*100=21.95% 144 320
Cash 36 36/592*100=6.08% 66 34
Total current assets 288 288/592*100=48.64 380 662
%
Noncurrent assets 304 304/592*100=51.35% 312 650
Total assets 592 592/592*100=100% 692 1,312

Liabilities and
owners’ equity
Current liabilities 82 82/592*100=13.85% 104 390
Long term debt 60 60/592*100=10.13% 60 260
Total liabilities 142 142/592*100=23.98 164 650
%
Share capital 220 220/592*100=37.16% 220 500
Retained earnings 230 230/592*100=38.85 308 162
Total owners’ equity 450 450/592*100=76.01 528 662
%
Total Libilites & 592 592/592*100=100%
equity

Condensed comparative income statement as on December 31 2003-2005 (Rs. in millions)

2003 Solution 2003 2004 2004 2005 2005
Sales 500 500/500*100=100% 680 850
Cost of goods sold (326) 326/500*100=65.2% (456) (616)
Gross profit 174 174/500*100=34.8% 224 234
Administrative (110) 110/500*100=22% (150) (212)
expenses
Other expenses (8) 8/500*100=1.6% (4) (10)
Net income 56 56/500*100=11.2% 70 12
Required:
 1. You are required to analyze the trends by employing vertical analysis of the business
activities and financial position of the corporation in the empty columns.
2. Provide you’re comments regarding the performance of the business.

Question # 2:
JABIRU LTD
Comparative Statement of Financial Performance
For the years ended 2015-2016
(000 omitted)

2015 2016
Sales revenue $325 $348
Less: Cost of goods sold 180 215
Gross Profit 145 133
Operating expenses 94 95
Operating Profit $51 $38

JABIRU LTD
Comparative Statements of Financial Position
As at 31 December 2015- 2016
(000 omitted)

2015 2016
Assets
Cash at bank $21 $12
Trade debtors 43 62
Inventory 125 133
Plant and equipment 286 283
$475 $490
Liabilities and Shareholder’s equity
Trade creditors $116 $126
Non- Current liabilities 121 119
Paid- up capital 150 150
Retained profits 88 95
$475 $490

Required: Perform vertical analysis for both the years and comment on the company financial
position.
Question # 3:

Comparative Balance Sheets

December 31, 19x6 and 19x5
(in thousands of dollars)
Year Increase/Decrease
Assets 19x6 19x5 Amount Percentage
Current Assets:
Cash 800 700
Marketable Securities 450 300
Accounts Receivable 12,000 11,000
Inventory 20,000 17,000
Prepaid Expenses 250 300
Total Current Assets 33,500 29,300
Long term investment 500 550
Fixed Assets / Property, Plant & Equipment:
Land 6,000 6,000
Building 55,000 52,000
Plant & Equipment 25,000 23,000
Total Fixed Assets 86,000 81,000
120,00 110,85
Total Assets 0 0

Liabilities & Stockholders' Equity

Current Liabilities:
Accounts Payable 7,500 7,050
Accured Expenses 2,200 2,100
Notes Payable 3,000 3,200
Total Current Liabilities 12,700 12,350
Long-term Liabilities:
Bonds Payable($1000 face value; 10%) 37,300 35,700
Total Liabilities 50,000 48,050
Stockholders' Equity:
Preferred Stock ($100 par value; 8%) 6,000 6,000
Common Stock ($10 par value) * 25,000 24,000
Additional paid-in Capital 4,000 3,800
Retained Earnings 35,000 29,000
Total Stockholders' Equity 70,000 62,800
120,00 110,85
Total Liabilities & Stockholders' Equity 0 0

* 100,000 shares of common stock were issued on January1, 19x6. Since these shares were
outstanding during the entire year, the weighted-average number of shares outstanding in 19x6 was
2,500,000 shares.

Contemporary Interiors, Inc.

Comparative Income Statement
Foe the year ended on December 31, 19x6 and 19x5
(in thousands of dollars)

Year Increase/Decrease
Amoun
19x6 19x5 t Percentage
87,00 82,00
Sales 0 0 5000 6.09%
60,93 56,35
Cost of goods sold 0 0 4580 8.125%
26,07 25,65
Gross Profit 0 0 420 1.63%
Operative Expenses:
Selling Expenses 5,000 4,600 400 8.69%
Administrative Expenses 2,000 2,100 (100) (4.76)%
Total Operating Expenses 7,000 6,700 300 44.47%
19,07 18,95
Operating Income 0 0 120 0.63%
Interest Expenses 4,030 3,890 140 3.60%
15,04 15,06
Income before tax 0 0 (20) (0.13)%
Income-tax expenses 3,760 3,800 (40) (1.05)%
11,28 11,26
Net Profit 0 0 20 0.18%

Required:
1. Find out Amount Change & % age Change
2. Make Common Size and Vertical Analysis
3. Net Working Capital (Current Assets - Current
 Liabilities)
4. Current Ratio, Acid-Test Ratio, Receivable Turnouver, Inventory Turnover, Debt Equity
Ratio,
5. Comments on each year firm's ability to pay its short term debt.
6. Interest Coverage Ratio, Return on Sale.

Question # 4:

Rainbow Paint Co.

Comparative Income Statement
For the year ended December 31, 2006, 2005 Year Common Size Analysis
  2006 2005 2006 2005

Sales 5,125,000 3,257,600

Sales Return & Allowances 125,000 57,600

Net Sales 5,000,000 3,200,000

Cost of Goods Sold 3,400,000 2,080,000

Gross Profit 1,600,000 1,120,000

Selling Expenses 650,000 464,000
Admin. Expenses 325,000 224,000
Total Operative Expenses 975,000 688,000

Income From Operation 625,000 432,000

Other Income 25,000 19,200

650,000 451,200
Other Expenses (Interest) 105,000 64,000

Income before Tax 545,000 387,200

Income Tax Expenses 300,000 176,000
Net Income 245,000 211,200

Rainbow Paint Co.

Comparative Retained Earning Statement
For the year ended December 31, 2006, 2005 Year Common Size Analysis
  2006 2005 2006 2005

Retained Earning January 1 723,000 581,800

Net Income 245,000 211,200

Sub-Total 968,000 793,000

Dividends:

On Preferred Stock 40,000 40,000

OnCommon Stock 45,000 30,000

Total 85,000 70,000

Retained Earning December 31. 883,000 723,000

Rainbow Pain Co.

Balance Sheet
as on December 31, 2006 & 2005 Year Common Size Analysis
  2006 2005 2006 2005

Assets
Current Assets
Cash 175,000 125,000
Marketable Securities 150,000 50,000
Accounts Receivable 425,000 325,000
Inventories 720,000 480,000
Prepaid Expenses 30,000 20,000
Total Current Assets 1,500,000 1,000,000
Long-term Investments 250,000 225,000
Property, Plant & Equipment (Net) 2,093,000 1,948,000
Total Assets 3,843,000 3,173,000

Liabilities
Current Liabilities 750,000 650,000
Long -term Liabilities:
Mortgage Note Payable, 10%, due 2009 410,000 0
Bond Payable, 8%, due 2012 800,000 800,000

Total Long - Term Liabilities 1,210,000 800,000

Total Liabilities 1,960,000 1,450,000

Stockholders' Equity
Preferred 8% Stock, $100 par 500,000 500,000
Common stock, $10 par 500,000 500,000
Retained Earnings 883,000 723,000

Total Stockholders' Equity 1,883,000 1,723,000

Total Liabilities & Stockholders' Equity 3,843,000 3,173,000

Required:
Determine the Following measures for 2006 and Make Common Size Analysis
1-- Working Capital, Current Ratio, Quick Ratio.
2-- Accounts Receivable Turnover.
3-- Number of Days Sales in Receivable.
4-- Inventory Turnover.
5-- Number of Days Sales in Inventory.
6--Ratio of Fixed Assets to Long Term Liabilities.
7--Ratio of Liabilities to stockholders' Equity.
8--Number of times Interest Charges Earned.
9--Number of Times Preferred Dividend Earned.
10--Ratio of Net Sales to Assets.
11-- Rate Earned to Total Assets.
12--Rate Earned on Stockholders' Equity.
13--Rate Earned on Common Stockholders' Equity.
14--Earning Per Share on Common Stock.
15--Price-earning Ratio.
16--Dividend per Share of Common stock.
17--Dividend Yield.