“How Well Am I Doing?

”
Financial Statement
Analysis
Vertical and Horizontal
analysis of
Financial statements.
Financial statement (FS) analysis
 is the process of evaluating risks,
performance, financial health, and
future prospects of a business by
subjecting financial statement data
to computational and analytical
techniques with the objective of
making economic decisions (White
et.al 1998).
Irwin/McGraw-Hill 3 © The McGraw-Hill Companies, Inc., 2002
 FS Analysis Techniques
Analytical
techniques Horizontal
used to Analysis
examine Vertical
relationships
among
Analysis
financial
statement  Ratios
items
Irwin/McGraw-Hill 4 © The McGraw-Hill Companies, Inc., 2002
 Horizontal
Horizontal Analysis
Analysis

What
What isis horizontal
horizontal
analysis?
analysis?
Horizontal
Horizontal Analysis
Analysis
It’s
It’s an
an analysis
analysis of
of the
the percentage
percentage
increases
increases and
and decreases
decreases of
of
related
related items
items in
in comparative
comparative
financial
financial statements.
statements.
 Horizontal Analysis
also called trend analysis
is a technique for evaluating a
series of financial statement data
over a period of time with the
purpose of determining the
increase or decrease that has
taken place

Irwin/McGraw-Hill 7 © The McGraw-Hill Companies, Inc., 2002

 17-8

Horizontal Analysis

Using
Using comparative
comparative financial
financial
statements
statements toto calculate
calculate peso
peso
or
or percentage
percentage changes
changes in in aa
financial
financial statement
statement item
item from
from
one
one period
period to
to the
the next
next
 17-9

Trend Percentages
Show
Show changes
changes over
over time
time in
in
given
given financial
financial statement
statement items
items
(can
(can help
help evaluate
evaluate financial
financial
information
information of of several
several years)
years)
 Horizontal Analysis
All line items on the FS may
be subjected to horizontal
analysis

Irwin/McGraw-Hill 10 © The McGraw-Hill Companies, Inc., 2002

Horizontal analysis
 This will reveal the behavior of the
account over time.
 Is it increasing, decreasing or not
moving?
 What is the magnitude of the
change?
What is the relative change in the
balances of the account over time?
Irwin/McGraw-Hill 11 © The McGraw-Hill Companies, Inc., 2002
 Horizontal Analysis
Calculating Change in Dollar Amounts
Peso Current Year Base Year
= –
Change Figure Figure

Previous year is
the base year.

Calculating Change as a Percentage

Percentage Peso Change
Change
=
Base Year Figure × 100

Irwin/McGraw-Hill 12 © The McGraw-Hill Companies, Inc., 2002

 Lincoln Company
Comparative Balance Sheet Balance
Balance Sheet
Sheet
December 31, 2006 and 2005
Increase (Decrease)
Assets 2006 2005 Amount Percent
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
Total assets $1,139,500 $1,230,500 $ (91,000) (7.4%)
Liabilities
Current liabilities $ 210,000 $ 243,000 $ (33,000) (13.6%)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
Total liabilities $ 310,000 $ 443,000 $(133,000) (30.0%)
Stockholders’ Equity
Preferred 6% stock, $100 par $ 150,000 $ 150,000 —
Common stock, $10 par 500,000 500,000 —
Retained earnings 179,500 137,500 $42,000 30.5%
Total stockholders’ equity $ 829,500 $ 787,500 $42,000 5.3%
Total liab. & SE $1,139,500 $1230,500 $(91,000) (7.4%)
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005
Increase (Decrease)
Assets 2006 2005 Amount Percent
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) 444,500 Analysis:
Horizontal 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
Total assets Difference
$1,139,500 $1,230,500$17,000
$ (91,000) (7.4%)
Liabilities = 3.2%
Base year (2005) $533,000
Current liabilities $ 210,000 $ 243,000 $ (33,000) (13.6%)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
Total liabilities $ 310,000 $ 443,000 $(133,000) (30.0%)
Stockholders’ Equity
Preferred 6% stock, $100 par $ 150,000 $ 150,000 —
Common stock, $10 par 500,000 500,000 —
Retained earnings 179,500 137,500 $42,000 30.5%
Total stockholders’ equity $ 829,500 $ 787,500 $42,000 5.3%
Total liab. & SE $1,139,500 $1230,500 $(91,000) (7.4%)
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005
Increase (Decrease)
Assets 2006 2005 Amount Percent
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
Total assets $1,139,500 $1,230,500 $ (91,000) (7.4%)
Horizontal Analysis:
Liabilities
Current liabilities $ 210,000
Difference $ 243,000 $ (33,000) (13.6%)
$(82,500)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
= (46.5%)
Total liabilities Base year (2005)
$ 310,000 $177,500
$ 443,000 $(133,000) (30.0%)
Stockholders’ Equity
Preferred stock, $100 par $ 150,000 $ 150,000 —
Common stock, $10 par 500,000 500,000 —
Retained earnings 179,500 137,500 $42,000 30.5%
Total stockholders’ equity $ 829,500 $ 787,500 $42,000 5.3%
Total liab. & SE $1,139,500 $1230,500 $(91,000) (7.4%)
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005
Okay,
Okay, go to
to the
go2006 the next
next slide
slideIncrease (Decrease)
Assets 2005 Amount Percent
Current assets and
and calculate
calculate the
the percentage
$ 550,000 $percentage
533,000 $ 17,000 3.2%
Long-term investmentschange
change for
for fixed
fixed assets.
95,000 assets. (82,500) (46.5%)
177,500
Fixed assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
Total assets $1,139,500 $1,230,500 $ (91,000) (7.4%)
Liabilities
Current liabilities Horizontal
$ 210,000 Analysis:
$ 243,000 $ (33,000) (13.6%)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
Total liabilities $Difference
310,000 $ 443,000 ? $(133,000) (30.0%)
Stockholders’ Equity = ?
Base year (2005)
Preferred 6% stock, $100 par $ 150,000 $ 150,000
? —
Common stock, $10 par 500,000 500,000 —
Retained earnings 179,500 137,500 $42,000 30.5%
Total stockholders’ equity $ 829,500 $ 787,500 $42,000 5.3%
Total liab. & SE $1,139,500 $1230,500 $(91,000) (7.4%)
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005
Increase (Decrease)
Assets 2006 2005 Amount Percent
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
Total assets $1,139,500 $1,230,500 $ (91,000) (7.4%)
Liabilities
Current liabilities $ 210,000 $ 243,000 $ (33,000) (13.6%)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
Total liabilities $ 310,000 $ 443,000 $(133,000) (30.0%)
Stockholders’ Equity
Preferred 6% stock, $100 par $ 150,000 $ 150,000 —
Common stock, $10 par 500,000 500,000 —
Retained earnings 179,500 137,500 $42,000 30.5%
Total stockholders’ equity $ 829,500 $ 787,500 $42,000 5.3%
Total liab. & SE $1,139,500 $1230,500 $(91,000) (7.4%)
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005
Increase (Decrease)
Assets 2006 2005 Amount Percent
Current assets $ 550,000 $ 533,000 $ 17,000 3.2%
Long-term investments 95,000 177,500 (82,500) (46.5%)
Fixed assets (net) 444,500 470,000 (25,500) (5.4%)
Intangible assets 50,000 50,000 —
Total assets $1,139,500 $1,230,500 $ (91,000) (7.4%)
Liabilities
Current liabilities $ 210,000 $ 243,000 $ (33,000)
(5.4%)
(5.4%)
(13.6%)
Long-term liabilities 100,000 200,000 (100,000) (50.0%)
Total liabilities $ 310,000 $ 443,000 $(133,000) (30.0%)
Stockholders’ Equity
Preferred 6% stock, $100 par $ 150,000 $ 150,000 —
Common stock, $10 par 500,000 500,000 —
Retained earnings 179,500 137,500 $42,000 30.5%
Total stockholders’ equity $ 829,500 $ 787,500 $42,000 5.3%
Total liab. & SE $1,139,500 $1230,500 $(91,000) (7.4%)
 Lincoln Company
Comparative Income Statement Income
Income Statement
Statement
December 31, 2006 and 2005
Increase (Decrease)
2006 2005 Amount Percent
Sales $1,530,500 $1,234,000 $296,500 24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales $1,498,000 $1,200,000 $298,000 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit $ 455,000 $ 380,000 $ 75,000 19.7%
Selling expenses $ 191,000 $ 147,000 $ 44,000 29.9%
Administrative expenses 104,000 97,400 6,600 6.8%
Total operating expenses $ 295,000 $ 244,400 $ 50,600 20.7%
Operating income $ 160,000 $ 135,600 $ 24,400 18.0%
Other income 8,500 11,000 (2,500) (22.7%)
$ 168,500 $ 146,600 $ 21,900 14.9%
Other expense 6,000 12,000 (6,000) (50.0%)
Income before income tax $ 162,500 $ 134,600 $ 27,900 20.7%
Income tax 71,500 58,100 13,400 23.1%
Net income $ 91,000 $ 76,500 $ 14,500 19.0%
 Lincoln Company
Comparative Income Statement
December 31, 2006 and 2005
Increase (Decrease)
2006 2005 Amount Percent
Sales $1,530,500 $1,234,000 $296,500 24.0%
24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales $1,498,000 $1,200,000 $298,000 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit $ 455,000 $ 380,000 $ 75,000 19.7%
Horizontal Analysis:
Selling expenses $ 191,000 $ 147,000 $ 44,000 29.9%
Administrative expenses 104,000
Increase amount 97,400
$296,500 6,600 6.8%
Total operating expenses $ 295,000 $ 244,400 $ 50,600
= 24.0%20.7%
Operating income Base year (2005)
$ 160,000 $1,234,000
$ 135,600 $ 24,400 18.0%
Other income 8,500 11,000 (2,500) (22.7%)
$ 168,500 $ 146,600 $ 21,900 14.9%
Other expense 6,000 12,000 (6,000) (50.0%)
Income before income tax $ 162,500 $ 134,600 $ 27,900 20.7%
Income tax 71,500 58,100 13,400 23.1%
Net income $ 91,000 $ 76,500 $ 14,500 19.0%
 Lincoln Company
Comparative Income Statement
December 31, 2006 and 2005
Increase (Decrease)
2006 2005 Amount Percent
Sales $1,530,500 $1,234,000 $296,500 24.0%
Sales returns 32,500 34,000 (1,500) (4.4%)
Net sales $1,498,000 $1,200,000 $298,000 24.8%
Cost of goods sold 1,043,000 820,000 223,000 27.2%
Gross profit $ 455,000 $ 380,000 $ 75,000 19.7%
Selling expenses $ 191,000 $ 147,000 $ 44,000 29.9%
Administrative expenses 104,000 97,400 6,600 6.8%
Total operating expenses Horizontal
$ 295,000 $ 244,400 $ 50,600
Analysis: 20.7%
Operating income $ 160,000 $ 135,600 $ 24,400 18.0%
Other income Increase8,500
amount 11,000
$298,000(2,500) (22.7%)
$ 168,500 $ 146,600 = 24.8%14.9%
$ 21,900
Other expense Base year (2005) 12,000
6,000 $1,200,000(6,000) (50.0%)
Income before income tax $ 162,500 $ 134,600 $ 27,900 20.7%
Income tax 71,500 58,100 13,400 23.1%
Net income $ 91,000 $ 76,500 $ 14,500 19.0%
 17-22

Horizontal Analysis Example

The management of Clover Company
provides you with comparative balance
sheets of the years ended December 31,
1999 and 1998. Management asks you to
prepare a horizontal analysis on the
information.
17-23
 17-24

CLOVER CORPORATION
Comparative Balance Sheets
December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 67,000 $ 44,000 $ 23,000 52.3
Notes payable 3,000 6,000 (3,000) (50.0)
Total current liabilities 70,000 50,000 20,000 40.0
Long-term liabilities:
Bonds payable, 8% 75,000 80,000 (5,000) (6.3)
Total liabilities 145,000 130,000 15,000 11.5
Stockholders' equity:
Preferred stock 20,000 20,000 - 0.0
Common stock 60,000 60,000 - 0.0
Additional paid-in capital 10,000 10,000 - 0.0
Total paid-in capital 90,000 90,000 - 0.0
Retained earnings 80,000 69,700 10,300 14.8
Total stockholders' equity 170,000 159,700 10,300 6.4
Total liabilities and stockholders' equity $ 315,000 $ 289,700 $ 25,300 8.7
 17-25

Horizontal Analysis Example

 17-26

CLOVER CORPORATION
Comparative Balance Sheets
December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 67,000 $ 44,000 $ 23,000 52.3
Notes payable 3,000 6,000 (3,000) (50.0)
Total current liabilities 70,000 50,000 20,000 40.0
Long-term liabilities:
Bonds payable, 8% 75,000 80,000 (5,000) (6.3)
Total liabilities 145,000 130,000 15,000 11.5
Stockholders' equity:
Preferred stock 20,000 20,000 - 0.0
Common stock 60,000 60,000 - 0.0
Additional paid-in capital 10,000 10,000 - 0.0
Total paid-in capital 90,000 90,000 - 0.0
Retained earnings 80,000 69,700 10,300 14.8
Total stockholders' equity 170,000 159,700 10,300 6.4
Total liabilities and stockholders' equity $ 315,000 $ 289,700 $ 25,300 8.7
 17-27

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 17-28

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 17-29

CLOVER CORPORATION
Comparative Income Statements
For the Years Ended December 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Sales increased by 8.3% while net
Net income before taxes 25,000 32,000 (7,000) (21.9)
income decreased
Less income taxes (30%) 7,500
by 21.9%.
9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
 17-30

There were increases in both cost of goods

sold (14.3%) and operating expenses (2.1%).
These increased costs
CLOVERmore than offset the
CORPORATION
increase inComparative
sales, yielding anStatements
Income overall
Fordecrease
the Years Ended
in netDecember
income. 31, 1999 and 1998
Increase (Decrease)
1999 1998 Amount %
Net sales $ 520,000 $ 480,000 $ 40,000 8.3
Cost of goods sold 360,000 315,000 45,000 14.3
Gross margin 160,000 165,000 (5,000) (3.0)
Operating expenses 128,600 126,000 2,600 2.1
Net operating income 31,400 39,000 (7,600) (19.5)
Interest expense 6,400 7,000 (600) (8.6)
Net income before taxes 25,000 32,000 (7,000) (21.9)
Less income taxes (30%) 7,500 9,600 (2,100) (21.9)
Net income $ 17,500 $ 22,400 $ (4,900) (21.9)
Horizontal analysis

Irwin/McGraw-Hill 31 © The McGraw-Hill Companies, Inc., 2002

 Horizontal analysis
 Horizontal analysis is performed
when one compares the 2014
Sales to that of 2015.
So the directional movement of
the analysis is horizontal or
between two columns.

Irwin/McGraw-Hill 32 © The McGraw-Hill Companies, Inc., 2002

Horizontal analysis
How much is the Peso
change?
What is the Percentage
change?

Irwin/McGraw-Hill 33 © The McGraw-Hill Companies, Inc., 2002

Horizontal analysis
✓Peso change = P250,000 -
P175,000 = P75,000
✓Percentage change =
P75,000 / P175,000 = 42.86%

Irwin/McGraw-Hill 34 © The McGraw-Hill Companies, Inc., 2002

 Horizontal analysis
Sales increased by
P75,000.
This represents growth of
42.86% from 2014 levels.

Irwin/McGraw-Hill 35 © The McGraw-Hill Companies, Inc., 2002

Vertical
Vertical Analysis
Analysis

also
also called
called common-size
common-size
analysis
analysis
Vertical
Vertical Analysis
Analysis
isis aa technique
technique that
that expresses
expresses
each
each financial
financial statement
statement item
item as
as aa
percentage
percentage of of aa base
base amount
amount
(Weygandt
(Weygandt et.al.et.al. 2013).
2013).
 17-38

Vertical Analysis
For
For aa single
single financial
financial
statement,
statement, each each item
item
is
is expressed
expressed as as aa
percentage
percentage of of aa
significant
significant total,
total,
e.g.,
e.g., all
all income
income
statement
statement items items areare
expressed
expressed as as aa
percentage
percentage of of sales
sales
 17-39

Common-Size Statements
Financial
Financial statements
statements that
that show
show
only
only percentages
percentages and
and nono absolute
absolute
peso
peso amounts
amounts
Vertical analysis
For the SCI, the base
amount is Net Sales.

Balance of Account / Total Net Sales

Irwin/McGraw-Hill 40 © The McGraw-Hill Companies, Inc., 2002

 Vertical Analysis
Let’s take another look at the
information from the
comparative income statements
of Clover Co. for 2002 and
2001.

Irwin/McGraw-Hill 41 © The McGraw-Hill Companies, Inc., 2002

 Common-Size Statements
CLOVER CO.
Comparative Income Statements
For the Years Ended December 31, 2002 and 2001
Common-Size
Percentages
2002 2001 2002 2001
Net sales $ 520,000 $ 480,000 100.0 100.0
Cost of goods sold 360,000 315,000
Net sales is usually the base and is expressed as 100%.
Gross margin 160,000 165,000
Operating expenses 128,600 126,000
Net operating income 31,400 39,000
Interest expense 6,400 7,000
Net income before taxes 25,000 32,000
Less income taxes (30%) 7,500 9,600
Net income $ 17,500 $ 22,400

Irwin/McGraw-Hill 42 © The McGraw-Hill Companies, Inc., 2002

 Common-Size Statements
CLOVER CO.
Comparative Income Statements
For the Years Ended December 31, 2002 and 2001
Common-Size
Percentages
2002 2001 2002 2001
Net sales $ 520,000 $ 480,000 100.0 100.0
Cost of goods sold 360,000 315,000 69.2 65.6
Gross margin 160,000 165,000
Operating expenses 128,600 126,000
2002 COGS
Net operating ÷ 2002 31,400
income Net Sales39,000
× 100
( $360,000
Interest expense ÷ $520,000 ) × 1007,000
6,400 = 69.2%
Net income before taxes 25,000 32,000
2001(30%)
Less income taxes COGS ÷7,5002001 Net9,600
Sales × 100
Net income ( $315,000 $ ÷17,500 $ 22,400
$480,000 ) × 100 = 65.6%
( $315,000 ÷ $480,000 ) × 100 = 65.6%

Irwin/McGraw-Hill 43 © The McGraw-Hill Companies, Inc., 2002

 Common-Size Statements
CLOVER CO.
Comparative Income Statements
For the Years Ended December 31, 2002 and 2001
Common-Size
Percentages
2002 2001 2002 2001
Net sales $ 520,000 $ 480,000 100.0 100.0
Cost of goods sold 360,000 315,000 69.2 65.6
Gross margin 160,000 165,000 30.8 34.4
Operating expenses 128,600 126,000 24.8 26.2
Net operating income 31,400 39,000 6.0 8.2
Interest expense 6,400 7,000 1.2 1.5
Net income before taxes 25,000 32,000 4.8 6.7
Less income taxes (30%) 7,500 9,600 1.4 2.0
Net income $ 17,500 $ 22,400 3.4 4.7

Irwin/McGraw-Hill 44 © The McGraw-Hill Companies, Inc., 2002

Vertical analysis
For the SFP, the base
amount is Total Assets

Balance of Account / Total Assets

Irwin/McGraw-Hill 45 © The McGraw-Hill Companies, Inc., 2002

 Lincoln Company
Comparative Balance Sheet
Balance
Balance
December 31, 2006 Sheet
Sheet
December 31, 2005
Amount Percent Amount Percent
Assets
Current assets $ 550,000 48.3% $ 533,000 43.3%
Long-term investments 95,000 8.3 177,500 14.4
Property, plant, & equip. (net) 444,500 39.0 470,000 38.2
Intangible assets 50,000 4.4 50,000 4.1
Total assets $1,139,500 100.0% $1,230,500 100.0%
Liabilities
Current liabilities $ 210,000 18.4% $ 243,000 19.7%
Long-term liabilities 100,000 8.8 200,000 16.3
Vertical
Total Analysis:
liabilities $ 310,000 27.2% $ 443,000 36.0%
Stockholders’ Equity
Current assets $550,000
Preferred stock, 6%, $100 par $ 150,000 = 13.2%
48.3% $ 150,000 12.2%
Totalstock,
Common assets $10 par $1,139,500
500,000 43.9 500,000 40.6
Retained earnings 179,500 15.7 137,500 11.2
Total stockholders’ equity $ 829,500 72.8% $ 787,500 64.0%
Total liab. & SE $1,139,500 100.0% $1,230,500 100.0%
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 December 31, 2005
Amount Percent Amount Percent
Assets
Current assets $ 550,000 48.3% $ 533,000 43.3%
43.3%
Long-term investments 95,000 8.3 177,500 14.4
Property, plant, & equip. (net) 444,500 39.0 470,000 38.2
Intangible assets 50,000 4.4 50,000 4.1
Total assets $1,139,500 100.0% $1,230,500 100.0%
Liabilities
Current liabilities $ 210,000 18.4% $ 243,000 19.7%
Long-term liabilities 100,000 8.8 200,000 16.3
Total liabilities Vertical Analysis:
$ 310,000 27.2% $ 443,000 36.0%
Stockholders’ Equity
Current assets $533,000
Preferred 6% stock, $100 par $ 150,000 13.2% $ 150,000 12.2%
= 43.3%
Common stock, $10 par Total assets500,000 $1,230,500500,000
43.9 40.6
Retained earnings 179,500 15.7 137,500 11.2
Total stockholders’ equity $ 829,500 72.8% $ 787,500 64.0%
Total liab. & SE $1,139,500 100.0% $1,230,500 100.0%
 Lincoln Company
Comparative Balance Sheet
December 31, 2006 December 31, 2005
Amount Percent Amount Percent
Assets
Current assets $ 550,000 48.3% $ 533,000 43.3%
Long-term investments 95,000 8.3 177,500 14.4
Property, plant, & equip. (net) 444,500 39.0 470,000 38.2
Intangible assets 50,000 4.4 50,000 4.1
Total assets $1,139,500 100.0% $1,230,500 100.0%
Liabilities
Current liabilities $ 210,000 18.4% $ 243,000 19.7%
Long-term liabilities 100,000 8.8 200,000 16.3
Total liabilities $ 310,000 27.2% $ 443,000 36.0%
Stockholders’ Equity
Preferred 6% stock, $100 par $ 150,000 13.2% $ 150,000 12.2%
Common stock, $10 par 500,000 43.9 500,000 40.6
Retained earnings 179,500 15.7 137,500 11.2
Total stockholders’ equity $ 829,500 72.8% $ 787,500 64.0%
Total liab. & SE $1,139,500 100.0% $1,230,500 100.0%
 Lincoln Company Income
Comparative Income Statement Income
Statement
For the Years Ended December 31, 2006 and 2005Statement
2006 2005
Amount Percent Amount Percent
Sales $1,530,500 102.2% $1,234,000 102.8%
Sales returns 32,500 2.2 34,000 2.8
Net sales $1,498,000 100.0% $1,200,000 100.0%
Cost of goods sold 1,043,000 69.6 820,000 68.3
Gross profit $ 455,000 30.4% $ 380,000 31.7%
Selling expenses $ 191,000 Net12.8%
sales $ 147,000 12.3%
Administrative expenses 104,000 Net6.9sales 97,400 8.1
Total operating expenses $ 295,000 is
is 100.0%
100.0%
19.7% $ 244,400 20.4%
Income from operations $ 160,000 10.7 $ 135,600 11.3%
Other income 8,500 0.6 11,000 0.9
$ 168,500 11.3% $ 146,600 12.2%
Other expense 6,000 0.4 12,000 1.0
Income before income tax $ 162,500 10.9% $ 134,600 11.2%
Income tax expense 71,500 4.8 58,100 4.8
Net income $ 91,000 6.1% $ 76,500 6.4%
 Lincoln Company
Comparative Income Statement
For the Years Ended December 31, 2006 and 2005
2006 2005
Amount Percent Amount Percent
Sales $1,530,500 102.2% $1,234,000 102.8%
Sales returns 32,500 2.2 34,000 2.8
Net sales $1,498,000 100.0% $1,200,000 100.0%
Cost of goods sold 1,043,000 69.6 820,000 68.3
Gross profit $ 455,000 30.4% $ 380,000 31.7%
Selling expenses $ 191,000 12.8% $ 147,000 12.3%
Administrative expenses 104,000 6.9 97,400 8.1
Total operating expenses $ 295,000 19.7% $ 244,400 20.4%
Income from operations $ 160,000 10.7 $ 135,600 11.3%
Other income 8,500 0.6 11,000 0.9
Vertical Analysis: $ 168,500 11.3% $ 146,600 12.2%
Other expenseexpenses $191,0006,000
Selling 0.4 12,000 1.0
Income before income tax $ 162,500= 12.8%
10.9% $ 134,600 11.2%
Nettax
Income sales
expense $1,498,000
71,500 4.8 58,100 4.8
Net income $ 91,000 6.1% $ 76,500 6.4%
 Lincoln Company
Comparative Income Statement
For the Years Ended December 31, 2006 and 2005
2006 2005
Amount Percent Amount Percent
Sales $1,530,500 102.2% $1,234,000 102.8%
Sales returns 32,500 2.2 34,000 2.8
Net sales $1,498,000 100.0% $1,200,000 100.0%
Cost of goods sold 1,043,000 69.6 820,000 68.3
Gross profit $ 455,000 30.4% $ 380,000 31.7%
Selling expenses $ 191,000 12.8% $ 147,000 12.3%
Administrative expenses 104,000 6.9 97,400 8.1
Total operating expenses $ 295,000 19.7% $ 244,400 20.4%
Income from operations $ 160,000 10.7 $ 135,600 11.3%
Other income 8,500 0.6 11,000 0.9
$ 168,500 11.3% $ 146,600 12.2%
Other expense 6,000 0.4 12,000 1.0
Income before income tax $ 162,500 10.9% $ 134,600 11.2%
Income tax expense 71,500 4.8 58,100 4.8
Net income $ 91,000 6.1% $ 76,500 6.4%
 Lincoln Company
Comparative Income Statement
For the Years Ended December 31, 2006 and 2005
2006 2005
Amount Percent Amount Percent
Sales $1,530,500 102.2% $1,234,000 102.8%
Sales returns 32,500 2.2 34,000 2.8
Net sales $1,498,000 100.0% $1,200,000 100.0%
Cost of goods sold 1,043,000 69.6 820,000 68.3
Gross profit $ 455,000 30.4% $ 380,000 31.7%
Selling expenses $ 191,000 12.8% $ 147,000 12.3%
Administrative expenses 104,000 6.9 97,400 8.1
Total operating expenses $ 295,000 19.7% $ 244,400 20.4%
Income from operations $ 160,000 10.7 $ 135,600 11.3%
Other income 8,500 0.6 11,000 0.9
$ 168,500 11.3% $ 146,600 12.2%
Other expense 6,000 0.4 12,000 1.0
Income before income tax $ 162,500 10.9% $ 134,600 11.2%
Income tax expense 71,500 4.8 58,100 4.8
Net income $ 91,000 6.1% $ 76,500 6.4%
 Lincoln Company
Comparative Income Statement
For the Years Ended December 31, 2006 and 2005
2006 2005
Amount Percent Amount Percent
Sales $1,530,500 102.2% $1,234,000 102.8%
Sales returns 32,500 2.2 34,000 2.8
Net sales $1,498,000 100.0% $1,200,000 100.0%
Cost of goods sold 1,043,000 69.6 820,000 68.3
Gross profit $ 455,000 30.4% $ 380,000 31.7%
Selling expenses $ 191,000 12.8% $ 147,000 12.3%
Administrative expenses 104,000 6.9 97,400 8.1
Total operating expenses $ 295,000 19.7% $ 244,400 20.4%
Income from operations $ 160,000 10.7 $ 135,600 11.3%
Other income 8,500 0.6 11,000 0.9
$ 168,500 11.3% $ 146,600 12.2%
Other expense 6,000 0.4 12,000 1.0
Income before income tax $ 162,500 10.9% $ 134,600 11.2%
Income tax expense 71,500 4.8 58,100 4.8
Net income $ 91,000 6.1% $ 76,500 6.4%