Answer:
Computer Tycoon, Inc.
1. Horizontal Analysis, calculating the year-over-year changes in each line:
Computer Tycoon, Inc. Income Statements For the Year Ended December 31
2016 2015 Dollars %
Sales Revenue $108,000 $132,000 -$24,000 -18.2%
Cost of Goods Sold 64,000 74,700 -$10,700 -14.3%
Gross Profit 44,000 57,300 -$13,300 -23.2%
Selling, General, & Administrative
Expenses 36,800 38,600 -$1,800 -4.7%
Interest Expense 580 515 $65 +12.6%
Income before Income Tax Exp. 6,620 18,185 -$11,565 -63.6%
Income Tax Expense 1,500 5,800 -$4,300 -74.1%
Net Income $5,120 $12,385 -$7,265 -58.7%
2-A. Vertical analysis by expressing each line as a percentage of total revenues:
Computer Tycoon, Inc. Income Statements For the Year Ended December 31
2016 % 2015 %
Sales Revenue $108,000 100 $132,000 100
Cost of Goods Sold 64,000 59 74,700 56.6
Gross Profit 44,000 41 57,300 43.4
Selling, General, & Administrative
Expenses 36,800 34 38,600 29.2
Interest Expense 580 0.5 515 0.4
Income before Income Tax Exp. 6,620 6 18,185 13.8
Income Tax Expense 1,500 1.4 5,800 4.4
Net Income $5,120 4.7 $12,385 9.4
2-B No. It made less profit per dollar of sales in 2016 compared to 2015.
Explanation:
a) Horizontal analysis is the analysis of financial statements to show changes in the amounts of corresponding financial statement items over a period of time. It is used to evaluate the trend situations, using financial statements for two or more periods.
b) Vertical analysis is another technique for analyzing financial statements with each line item being listed as a percentage of a base figure within the statement. For income statement, the base figure is usually the Sales Revenue, while for balance sheet, the base figure is the total assets.
