Comparative Financial Statement Common Size Comparative Statement

							                                              Chapter


  Statement Analysis: 23
Comparative Statements

  Section 1: Vertical Analysis
      Section Objectives


      1.   Use vertical analysis techniques
           to analyze a comparative income
           statement and balance sheet.
  Phases of Statement Analysis

1. Computation Phase:
     Vertical analysis
     Horizontal analysis
     Trend analysis
2. Interpretation Phase:
QUESTION:


      What is vertical analysis?


ANSWER:


      Vertical analysis is computing the
      relationship between each item on a
      financial statement to some base
      amount on the statement.
QUESTION:


      What is horizontal analysis?


ANSWER:


      Horizontal analysis is computing the
      percentage change for individual
      items in the financial statements
      from year to year.
QUESTION:


      What is a financial ratio?


ANSWER:


      A financial ratio is computing ratio
      and percentage relationships of the
      current year with those of the
      immediately preceding year.
QUESTION:


      What is trend analysis?


ANSWER:


      Trend analysis is a better technique
      than just analyzing ratios. It
      compares selected ratios and
      percentages over a period of time.
Objective 1.


 Use Vertical Analysis Techniques To Analyze A
 Comparative Income Statement And Balance
 Sheet.
  Vertical Analysis of the Income
             Statement
Each item is expressed as a percentage of the
net sales figure.

  Cost of goods sold       $1,775,000
                       =              = 59.76%
      Net Sales            $2,970,200

   Selling expenses      $ 525,424
                       =             = 17.69%
       Net Sales         $ 2,970,200

Net income after taxes   $ 56,578
                       =             = 1.9%
       Net Sales         $ 2,970,200
QUESTION:


      What are comparative statements?


ANSWER:


      Comparative statements are
      financial statements presented side
      by side for two or more years.
QUESTION:


      What are common-size statements?


ANSWER:


      Common-size statements are
      financial statements with items
      expressed as percentages of a base
      amount.
                         Comparative Statement

                                California Products, Inc.
                            Comparative Income Statement
                        Year Ended December 31, 2008 and 2007

                                             Amounts                 Percent of Net Sales

                                         2008          2007           2008        2007
Revenue
Sales                                  3,105,650       2,850,625       104.6      104.6
Less Sales Returns and Allowances        135,450         125,625         4.6        4.6
   Net Sales                           2,970,200       2,725,000       100.0      100.0

Net Income After Income Taxes             56,578            41,250        1.9        1.5
                        Common-size Statement

                                California Products, Inc.
                            Comparative Income Statement
                        Year Ended December 31, 2008 and 2007

                                             Amounts                 Percent of Net Sales

                                         2008          2007           2008        2007
Revenue
Sales                                  3,105,650       2,850,625       104.6      104.6
Less Sales Returns and Allowances        135,450         125,625         4.6        4.6
   Net Sales                           2,970,200       2,725,000       100.0      100.0

Net Income After Income Taxes             56,578            41,250        1.9        1.5
             Comparative Common-size Statement

                                California Products, Inc.
                            Comparative Income Statement
                        Year Ended December 31, 2008 and 2007

                                             Amounts                 Percent of Net Sales

                                         2008          2007           2008        2007
Revenue
Sales                                  3,105,650       2,850,625       104.6      104.6
Less Sales Returns and Allowances        135,450         125,625         4.6        4.6
   Net Sales                           2,970,200       2,725,000       100.0      100.0

Net Income After Income Taxes             56,578            41,250        1.9        1.5
        Vertical Analysis of the Balance
                     Sheet
  Each item is expressed as either a percentage of
  total assets or of total liabilities plus stockholders’
  equity.
           Cash                                 $108,886
                                            =               = 19.7%
        Total assets                            $553,016

        Accounts payable                        $ 72,090
                                            =               = 13.0%
 total liabilities plus stkhldrs’ equity.       $ 553,016
Total stockholders’ equity                  =   $311,921    = 56.4%
total liabilities plus stkhldrs’ equity.        $553,016
SECTION            Complete the following sentences:
 R
          The first step in financial statement
                           computation phase
          analysis is the _________________.
 E

 V        Vertical analysis is the relationship of
          ______________
          each item on a financial statement to
  I       some base amount on the statement.


 E        Horizontal analysis
          _________________ is the percentage
          change for individual items in the financial
 W        statements from year to year.
SECTION           Complete the following sentences:
 R
          The second step in financial statement
                          interpretation phase
          analysis is the __________________.
 E

 V
          Comparative statements
          _____________________ are financial
          statements presented side by side for two
  I       or more years.

 E        The last two columns of comparative
          common-size statements express
 W                    percentages
          numbers as ___________.
       Thank You
             for using

College Accounting, 11th Edition



      Price • Haddock • Brock