Question

2018 Income Statement Vertical Analysis (round to the nearest whole percent) 2019 Net Sales $ 459,000 $ 463,000 COGS $ 237,000 $ 215,000 Gross Profit $ 222,000 $ 248,000 Operating Expense $ 137,000 $ 135,000 Income from Operations $ 85,000 $ 113,000 Interest Expense $ 12,000 $ 14,000 Income Before Income Tax Expense $ 73,000 $ 99,000 Income Tax Expense $ 19,000 $ 25,000 Net Income $ 54,000 $ 74,000 Analyze your calculations above. Did the financial position of the company IMPROVE or WORSEN from 2018 to 2019. What was the main cause of this change?

Answer 1

Answer is given below

Income Statement Vertical analysis 2018 2019 $459,000 $237,000 $222,000 $137,000 $85,000 $12,000 $73,000 $19,000 $54,000 100 %| $463,000 52% $215,000 48% $248,000 30% $135,000 19% $113,000 3% Net Sales COGS Gross profit Operating Expenses Income from Operations Interest expense 100% 46% 54% 29% 24% $14,000 $99,000 $25,000 $74,000 3% Income before income tax 16% 21% 5% Income tax expense 4% Net income 12% 16% Financial position worsened mainly due to increase in COGS % by 6% Also Operating expense as % to Sales increased by 1% Percent Balance Sheet Horizontal Analysis Change 2019 2018 Change 3% 5% $96,000 $110,000 $116,000 $145,000 $163,000 -$18,000 $7,000 $366,000 $382,000 $219,000 $180,000 $585,000 $562,000 $99,000 $3,000 -$6,000 Cash Accounts Receivable Inventory Pre-paid expenses Total Current Assets Property, Plant and Equipment Total Assets -11% $12,000 $5,000 -$16,000 $39,000 $23,000 71% -4% 22% 4% Liabilities $223,000 $246,000 -$23,000 $95,000 -9% 26% Total Current Liabilities $25,000 $2,000 Long Term Liabilities Total Liabilities Stockholders Equity Preferred Stock Common Stock $120,000 $343,000 $341,000 1% $0 $21,000 $21,000 $23,000 $98,000 $98,000 $144,000 $123,000 0% 17% Total Stockholders Equity Total Liabilities and Stockholders Equity $242,000 $221,000 $585,000 $562,000 10% 4% Long term Liability has been taken during the year. Increase in Debt has increased Debt Equity ratio Also Fixed Assets has been purchased during the year Industry Ratio Ratio 2019 2018 Comments Average Current Ratio $366,000 $223,000 $382,000 Ratio improved since Current Current Assets 1.64 1.55 1.65 $246,000 Liabilities Decreased Current Liabilities Debt $120,000 $242,000 $95,000 Ratio is better than Industry average Debt 50% 43% 57% Ratio improved from 2018 to 2019 $221,000 Equity Gross profit $222,000 $459,000 $248,000 Financial position worsened Due to lower GP ratio Gross profit 48% 54% 55% $463,000 Sales