Discuss significant changes that have occurred in the vertical analysis and hori

Question

Discuss significant changes that have occurred in the vertical analysis and horizontal analysis.

Following are the analysis completed:

Our Company Income Statement   Vertical Analysis Income Statement Vertical Analysis Amount Difference Horizontal Analysis Year ending 1 Year 1 Year ending 2 Year 2 Years 1 & 2 Sales $                    20,000 100.00% $                    25,000 100.00% $                             5,000 25.00% CGS $                      9,000 45.00% $                    11,000 44.00% $                             2,000 22.22% Gross Profit $                    11,000 55.00% $                    14,000 56.00% $                             3,000 27.27% Operating Expenses: Salaries Expense $                      2,200 11.00% $                      2,500 10.00% $                                 300 13.64% Utilities $                          250 1.25% $                          275 1.10% $                                   25 10.00% Supplies $                      1,000 5.00% $                          600 2.40% $                              (400) -40.00% Rent $                      1,000 5.00% $                      1,000 4.00% $                                    -   0.00% Advertising Expense $                          300 1.50% $                          325 1.30% $                                   25 8.33% Consulting Expense $                          200 1.00% $                          250 1.00% $                                   50 25.00% Depreciation Expense $                          500 2.50% $                          500 2.00% $                                    -   0.00% Total Operating Expenses $                      5,450 27.25% $                      5,450 21.80% $                                    -   0.00% Operating Income $                      5,550 27.75% $                      8,550 34.20% $                             3,000 54.05% Other Expenses: Interest Expense $                          100 0.50% $                          100 0.40% $                                    -   0.00% Income before taxes $                      5,450 27.25% $                      8,450 33.80% $                             3,000 55.05% Income taxes (40%) $                          545 2.73% $                          845 3.38% $                                 300 55.05% Net Income $                      4,905 24.53% $                      7,605 30.42% $                             2,700 55.05% EPS $                        4.91 $                        7.61

Explanation / Answer

There is increase in sales revenue in the current year as per horizontal analysis. There is increase in cost of goods sold in the current as horizontal analysis and there is decrease in cost of goods sold as per vertical analysis There is increase in gross profit as per the horizontal analysis Overall there is no change in the operating expenses but there is significant change in the supplies, which is there is significant decline in it and there is decrease in the operating expenses as per vertical analysis. There is considerable increase in the operating income as per both the analysis, so there is overall good performance as per the both analysis. As a result there is considerable increase in the net income and that ultimately resulted in the increase in the earning per share.

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