UNIVERSITY OF

BOHOL CITY OF
TAGBILARAN
COLLEGE OF BUSINESS AND ACCOUNTANCY

CASE ANALYSIS # 2
IKEA
Almhult, Sweden
ACCTG. PRAC 1
1ST SEMESTER 2021

Submitted by:
Bangahon, Jonie Ann BSA

Submitted to:

PRETTY ANNIFEL L. EDULAN, CPA, JD

 IKEA COMPANY

I. VERTICAL ANALYSIS:

IKEA Vertical Analysis of Income Statement

( in million of Euro)

2010 2009 2010 2009

23,53 21,84 100 100

Revenue 9 6 % %
12,45 11,87
Cost of Sales 4 8 53% 54%
11,08
Gross Profit 5 9,968 47% 46%
Operating Cost 7,888 7,202 34% 33%
Operating Income 3,197 2,766 14% 13%
Total Financial Income and Expenses 76 143 0% 1%
Income Before minority interest and
Taxes 3,273 2,909 14% 13%
Tax 577 384 2% 2%
Income Before minority interest and
Taxes 2,696 2,525 11% 12%
Minority Interest -8 9 0% 0%
Net Income 2,688 2,534 11% 12%

IKEA Vertical Analysis of Balance Sheet

(in million of Euro)

2010 2009 2010 2009

ASSETS
Property, plant and equipment 15,982 14,206 39% 38%
Other fixed assets 2,683 2,652 7% 7%
Total fixed assets 18,665 16,858 45% 45%
Inventory 3,415 3,116 8% 8%
Receivables 2,238 2,797 5% 8%
Cash and Securities 16,955 14,334 41% 39%
Total Current Assets 22,608 20,247 55% 55%
Total Assets 41,273 37,105 100% 100%
EQUITY AND LIABILITIES
Group equity 22,841 19,775 55% 53%
Long-term liabilities 4,296 4,509 10% 12%
Other non-current liabilities 1,325 1,395 3% 4%
 Total Non-Current Liabilities 5,621 5,904 14% 16%
Short term liabilities 7,724 7,251 19% 20%
Other payables 5,087 4,175 12% 11%
Total Current Liabilities 12,811 11,426 31% 31%
Total Equity and Liabilities 41,273 37,105 100% 100%

CONCLUSION:
Based on the computations above, it shows that the gross profit for
year 2009 is 46%, operating cost is 33% and taxes are 2%. This
leaves bottom line profit of 12%. With regards to the balance sheet
of the company, there’s a portion of cash and securities to be the
highest with 39%, whereas for the property, plant and equipment
is 38%. Going through the group equity, there’s also high with
56% and total noncurrent liabilities 16% which has a potential
impact on it. Whereas for the year 2010, the gross profit is 47%
while the operating cost is 34%. Taxes are at 2% which leaves
bottom line profit of 11%. As we can see on the balance sheet, it
implies that company follows the same type of strategy which has
a minimal impact in the same areas.

II. HORIZONTAL ANALYSIS:

IKEA Horizontal Analysis of Income Statement

(in million of Euro)
absolute
2010 2009 change %change

Revenue 23,539 21,846 1,693 8%

Cost of Sales 12,454 11,878 567 5%
Gross Profit 11,085 9,968 1,117 11%
Operating Cost 7,888 7,202 686 10%
Operating Income 3,197 2,766 431 16%
Total Financial Income and Expenses 76 143 -67 -47%
Income before minority interest and taxes 3,273 2,909 364 13%
Tax 577 384 193 50%
Income before minority and taxes 2,696 2,525 171 7%
Minority interest -8 9 17 -189%
Net Income 2,688 2,534 154 6%
 IKEA Horizontal Analysis of Balance Sheet
( in million of Euro)

2010 2009 Amount Percent

ASSETS
Property, plant and equipment 15,982 14,206 1,776 13%
Other fixed assets 2,683 2,652 31 1%
Total fixed assets 18,665 16,858 1,807 11%
Inventory 3,415 3,116 299 10%
Receivables 2,238 2,797 - 559 -20%
Cash and Securities 16,955 14,334 2,621 18%
Total Current Assets 22,608 20,247 2,361 12%
Total Assets 41,273 37,105 4,168 11%
EQUITY AND LIABILITIES -
Group equity 22,841 19,775 3,066 16%
Long-term liabilities 4,296 4,509 - 213 -5%
Other non-current liabilities 1,325 1,395 - 70 -5%
Total Non-Current Liabilities 5,621 5,904 - 283 -5%
Short term liabilities 7,724 7,251 473 7%
Other payables 5,087 4,175 912 22%
Total Current Liabilities 12,811 11,426 1,385 12%
Total Equity and Liabilities 41,273 37,105 4,168 11%

CONCLUSION:
Based on the computation above, the profit and loss statement in the two
consecutive years decreases 8% which emphasize an increase to the cost of
sales. There’s an almost similar levels of operating profit with a minimal
decrease of 16% which implies better management. With regards to taxes,
there’s an extent deceased of 50% which leaves bottom line profit of 6% up.
On the balance sheet, there’s an 11% decrease of total fixed assets because
there’s no real investment occurs while assets increased. Also, there’s a 12%
decrease in total current assets and this was because of overloaded levels of
inventory and fall down of receivables. Total equity has also definitely
dropped by 16% with an increased of 5% in total non-current liability. All in
all, IKEA was able to manage its short-term obligations as they reduced
other payables since the overall total current liabilities decreases into 12%.

III. RATIO ANALYSIS

Liquidity Ratios

 Current Ratio = Current Assets / Current Liabilities

Particulars 2009 2010

Current Assets €20,247,000 €22,608,000
Current Liabilities €11,426,000 €12,811,000
Current Ratio 1.77 1.76

It was shown on the table above that during the year of 2009, the current ratio is
higher than year 2010 which has a difference of 0.01. This indicates that IKEA company
is in better condition in year 2009 and able to pay its current obligation compared to year
2010. Indeed, the company has adequate current assets to repay its current liabilities for
the two consecutive years.

 Quick Ratio = (Current Assets – Inventory)/Current Liabilities

Particulars 2009 2010

Quick Assets €17,131,000 €19,193,000
Current Liabilities €11,426,000 €12,811,000
Quick Ratio 1.4993 1.4982

Based on the table above, regardless that on the year 2009 has a higher ratio or
better paying capacity compared to year 2010, there’s only a minimal difference. But
since IKEA has a quick ratio of more than 1 for the two consecutive years, it simply
means that the company has the capacity to repay its current obligations.

Profitability Ratios

 Operating Profit Ratio = Earnings Before Interest & Tax/Sales

Particulars 2009 2010

Operating Profit €2,909,000 €3,273,000
Net Sales €21,846,000 €25,539,000
 Operating Profit Ratio 13.32 % 12.82 %

Based on the computation shown on the table above, the result implies that year 2009
had the higher operating ration compared to year 2010. This definitely means that year
2009 has greater operating efficacy and effectiveness than year 2010.

 Net Profit Ratio Formula = Net Profit/Sales

Particulars 2009 2010

Net Profit €2,534,000 €2,688,000
Net Sales €21,846,000 €25,539,000
Operating Profit Ratio 11.60% 10.53%

The table above shows that year 2009 has better overall profitability with 11.60%
net profit ratio compared to year 2010 with only 10.52% net profit ratio.

 Return on Equity = Net Profit/Shareholders’ Equity

Particulars 2009 2010

Net Profit €2,534,000 €2,688,000
Equity €19,775,000 €22,841,000
Return on Equity 12.81% 11.77%

Year 2009 had 12.81% Return on Equity while year 2010 had 11.77%. This means that
in year 2009, the IKEA has a better return to its equity holders compared to year 2010.

Turnover Ratios

 Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

Particulars 2009 2010

COGS €11,878,000 €12,454,000
Average Inventory €3,116,000 €3,415,000
Inventory Turnover Ratio 3.81 3.65

Based on the table, year 2009 has higher inventory turnover compared to year
2010. A higher ratio means a company is selling goods very quickly and is managing its
inventory level effectively.

 Receivable Turnover Ratio = Credit Sales/Average Receivables

 Particulars 2009 2010
Credit Sales €21,846,000 €25,539,000
Average Receivables €2,797,000 €2,238,000
Receivable Turnover Ratio 7.81 11.41

Based on the table, year 2010 has higher receivable turnover compared to year
2009. This means that in year 2010, IKEA had more effectiveness in collecting its
receivables.

Solvency Ratios

 Debt Equity Ratio = Total Debt/Total Equity

Particulars 2009 2010

Debt €17,330,000 €18,432,000
Equity €19,775,000 €22,841,000
Debt Equity Ratio 0.88 0.81

Base on the result, year 2010 has better solvency position compared to year 2009. This
means tht in year 2010, IKEA had higher equity available to pay off its debt obligation.