Hello I need help in configuring the Income Statement into a 5year Horizontal an

Question

Hello I need help in configuring the Income Statement into a 5year Horizontal analysis and a 5 year vertical analysis

Is a horizontal analysis suppose to give percentage change and amount change from one year to the next or does it supposed to be focused on one year and comparing all the other years to that year? I am not sure how it is suposed to work. Please explain how the vertical analysis should look or how to compute %.

Microsoft Corp. Income Statement 2015 2014 2013 2012 2011 2010 Revenue $93,580 $86,833 $77,849 $73,723 $69,943 $62,484 Cost of revenue 33,038 27,078 20,385 17,530 15,577 12,395 Gross margin 60,542 59,755 57,464 56,193 54,366 50,089 Research and development 12,046 11,381 10,411 9,811 9,043 8,714 Sales and marketing 15,713 15,811 15,276 13,857 13,940 13,214 General and administrative 4,611 4,677 5,013 4,569 4,222 4,063 Goodwill Impairment 10,011 127 0 6,193 0 0 Operating income 18,161 27,759 26,764 21,763 27,161 24,098 Other income, net 346 61 288 504 910 915 Income before income taxes 18,507 27,820 27,052 22,267 28,071 25,013 Provision for income taxes 6,314 5,746 5,189 5,289 4,921 6,253 Net income $12,193 $22,074 $21,863 $16,978 $23,150 $18,760

Explanation / Answer

Solution.

Preparetion of a horizontal analysis.

We select 2010 as a base year.

Preparetion of a vertical analysis.

Income Statement 2015 % 2014 % 2013 % 2012 % 2011 % 2010 % Revenue    93,580    1.50    86,833    1.39    77,849    1.25    73,723    1.18    69,943        1.12    62,484 100% Cost of revenue    33,038    2.67    27,078    2.18    20,385    1.64    17,530    1.41    15,577        1.26    12,395 100% Gross margin    60,542    1.21    59,755    1.19    57,464    1.15    56,193    1.12    54,366        1.09    50,089 100% Research and development    12,046    1.38    11,381    1.31    10,411    1.19      9,811    1.13      9,043        1.04      8,714 100% Sales and marketing    15,713    1.19    15,811    1.20    15,276    1.16    13,857    1.05    13,940        1.05    13,214 100% General and administrative      4,611    1.13      4,677    1.15      5,013    1.23      4,569    1.12      4,222        1.04      4,063 100% Goodwill Impairment    10,011    1.62          127    0.02             -        6,193 100%             -               -   100% Operating income    18,161    0.75    27,759    1.15    26,764    1.11    21,763    0.90    27,161        1.13    24,098 100% Other income, net          346    0.38            61    0.07          288    0.31          504    0.55          910        0.99          915 100% Income before income taxes    18,507    0.74    27,820    1.11    27,052    1.08    22,267    0.89    28,071        1.12    25,013 100% Provision for income taxes      6,314    1.01      5,746    0.92      5,189    0.83      5,289    0.85      4,921        0.79      6,253 100% Net income    12,193    0.65    22,074    1.18    21,863    1.17    16,978    0.91    23,150        1.23    18,760 100%

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