Question

The accountant at ABC Water Company has been asked to perform a vertical analysis of the company's debts relative to their revenue. In 2015, ABC had $375,421 in revenue and $70,332 in debts; in 2016, they had $437,879 in revenue and $90,765 in debts. Using this information, calculate what percentage of their revenue in 2016 was debt, and how much it had increased from 2015?

Answer 1

Answer:

21% : and 3%

Explanation:

Vertical analysis is a financial analysis approach where line items of a financial statement are compared against a base figure.  The base figure may be at the top or bottom of the financial statement hence the term vertical analysis. In practice, revenue is the base figure in most reports.

For ABC Company, revenue is the base figure. In 2016, the debts were $90,765, and revenue was $437,879.

As a percentage, debt would be

= $90,000/$437, 879 x100

=0.20728 x 100

=20.728 %

=21%

in 2015, debts were  $70,332, and revenue were $375,421

As a percentage, debt would be

=$70, 765/ $375,421 x 100

=0.18734

=18.73

=19%

in 2016, the debt percentage increased from 19% in 2015 to 21% .  3% increment