Question

38. Evaluating Equity LO6 The following are financial measures from the financial statements of Brown Buildings for the past two years: 2011 2012 Total assets $4,255,350 $3,895,700 1,980,300 Total liabilities 2,050,150 Total stockholders' equity 1,915,400 2,205,200 Required a. Conduct a horizontal analysis of Brown Buildings. Comment on your findings and possible reasons for these findings. b. Conduct a vertical analysis for both years for Brown Buildings. Compare and briefly interpret the results of the two years.

Answer 1

Ans. 1	Brown Buildings
	Horizontal Analysis of Balance Sheet
		2012	2011	Amount change	Percentage change
	Assets
	Total assets	$4,255,350	$3,895,700	$359,650	9.23%
	Liabilities and Stockholder's Equity:
	Total liabilities	$2,050,150	$1,980,300	$69,850	3.53%
	Total stockholder's equity	$2,205,200	$1,915,400	$289,800	15.13%
	Total liabilities and owner's equity	$4,255,350	$3,895,700	$359,650	9.23%
	Change in amount = Particular amount of current year 2012 - Particular amount of previous year 2011
	Change in percentage = Change in amount / particular amount of base (2011) or previous year * 100
	Result shows that percentage change from previous year to current year is increasing for total assets in comparision
	to total liabilities which shows improvement in financial position of the company.
	Percentage increase in total stockholder's equity is more than total liabilities it means company is using owner's equity
	for financing then debts.
	Overall, the company's financial position is satisfactory.
Ans. 2	Brown Buildings
	Vertical Analysis of Balance Sheet
		2012	%	2011	%
	Assets
	Total assets	$4,255,350	100.00%	$3,895,700	100.00%
	Liabilities and Stockholder's Equity:
	Total liabilities	$2,050,150	48.18%	$1,980,300	50.83%
	Total stockholder's equity	$2,205,200	51.82%	$1,915,400	49.17%
	Total liabilities and owner's equity	$4,255,350	100.00%	$3,895,700	100.00%
	Amount is percentage (2011) =   Particular amount (2011) / Total assets (2011) * 100
	Amount is percentage (2012) =   Particular amount (2012) / Total assets (2012) * 100
	Percentage of total liabilities on total assets is less in 2012 then 2011.
	Percentage of total stockholder's equity on total assets is greater in 2012 then 2011.
	it means company is using owner's equity for financing then debts in current year more then previous year.