Answer:
The Roost Department Stores, Inc.
1. Vertical Analysis for Roost:
a) Income Statement Compared with Industry Average
Year Ended December 31 2016:
Roost $ and %; Industry Average Performance Difference
Net Sales $779,000 100% 100.0% 0
Cost of Good Sold 526,604 67.6% 65.8 -1.8%
Gross Profit 252,396 32.4% 32.2 -0.2%
Operating Expenses 163,590 21% 19.7 -1.3%
Operating Income 88,806 11% 14.5 -3.5%
Other Expenses 5,453 0.7% 0.4 -0.3%
Net Income $83,353 10.7% 14.1% -3.4%
b) Balance Sheet Compared with Industry Average
December 31 2016:
Roost $ and %; Industry Average Position Difference
Current Assets $316,780 67.4% 70.9% +3.5%
Fixed Assets, Net 120,320 25.6% 23.6 -2%
Intangible Assets Net 7,990 1.7% 0.8 -.0.9%
Other Assets 24,910 5.3% 4.7 -0.6%
Total Assets $470,000 100% 100.0%
Current Liabilities $217,140 46.2% 48.1% +1.9%
Long term Liabilities 104,340 22.2% 16.6 -5.6%
Total Liabilities 321,480 68.4% 64.7 -3.7%
Stockholders' Equity 148,520 31.6% 35.3 +3.7%
Total Liabilities and Stockholders' Equity $470,000 100.0%
2) Comparison of profit performance and financial position with industry average:
a) Cost of Goods Sold: The industry average was 65.8% of sales while the Roost's was more by 1.8%. This means that it costs Roost more by 1.8% for its sales than the industry average.
b) Operating Expense was more by 1.3% than industry average.
c) Operating Income was less by 3.5% than industry average.
d) Other expenses were more by 0.3% just as e) net operating income was less by 3.4% when compared to the industry average.
f) The Roost uses less working capital in current assets than the industry average by 3.5%. g) Although, fixed assets were used more than the industry average by 2%. The suggested indication here is that the Roost operates more with manual labour than capital. This explains its more than average expenses and less profit generation. This is an inefficiency factor signalled by these results. However, this looks to have been offset by its investment in intangibles and other assets more than the industry averages.
g) For the liabilities, the Roost operates with less short-term credit leverage than the industry average, showing that it could be paying its suppliers earlier than other entities in the industry. It should take full advantage of discounts offered by suppliers, but this does not reflect to be the case in the financials.
h) On the other hand, the Roost relies more on long-term credit than the industry average, just as it has less equity than the industry average. The long-term leverage is higher for Roost than other companies.
Explanation:
1. To calculate the percentages for the Roost, each financial statement element was divided by the base in each category. The performance and position differences showed the variances between the company and the industry average.
2. The comparison was limited to industry average. The company's performance and position could also be compared over time to ascertain noticeable improvements in the indexes.
