Practice of Horizontal and Vertical Analysis

Activity I

Question # 1: The following data are adapted from a recent annual report of Pak Suzuki.

Vertical Analysis Horizontal Analysis

Assets 2014 ($) Solution 2015($) Solution 2016($)
Cash 30,000 2.09% 20,000 66.67% 5,000
Account Receivable 200,000 13.98% 260,000 130% 290,000
Inventory 400,000 27.97% 480,000 120% 600,000
Net Fixed assets 800,000 55.94% 800,000 100% 800,000
Total Assets 1430,000 100% 1560,000 109.0% 1695,000
Liabilities
Accounts payable 230,000 16.08% 300,000 130.4% 380,000
Notes payable 200,000 13.98% 210,000 105% 225,000
Bank loan 100,000 6.99% 100,000 100% 140,000
Long term debt 300,000 20.97% 300,000 100% 300,000
Common stock 100,000 6.99% 100,000 100% 100,000
Retained Earnings 500,000 34.96% 550,000 110% 550,000
Total Liabilities 1430,000 100% 1560,000 109.09% 1695,000

Income Statement
Sales 40,00,000 100% 43,00,000 107.5% 38,00,000
Cost of goods sold 32,00,000 80% 36,00,000 112.5% 33,00,000
Net profit 3,00,000 7.5% 2,00,000 66.67% 1,00,000

Required:
1. Analyze the company’s financial condition and performance over the last three years by
using the vertical analysis. Also identify the problems if any.
2. From the information above prepare horizontal analysis. Analyze the company’s financial
condition and performance over the last three years by taking 2014 as base year. Also
identify the problems if any.
Question # 2:
Income statements of A Limited for the years ended December 31 2004 to 2008 are given below.

For the years ended December 31 (Rs. in million)

2004 2005 2006 2007 2008
Sales 2,002 1,990 2,220 2,701 3,240
Cost of sales (460) (358) (377) (432) (551)
Gross profit 1,542 1,632 1,843 2,269 2,689
Selling and distribution (701) (697) (821) (1,026) (1,166)
expenses
Research and development (320) (358) (400) (513) (617)
expense
Other expenses (40) (40) (44) (136) (32)
Finance cost (21) (20) (10) (10) (12)
Profit before tax 460 517 568 584 862
Tax (160) (159) (168) (189) (251)
Profit after tax 300 358 400 395 611

Required:
1. Examine the trend of the business activities of the company on the basis of vertical
analysis.
2. Examine the trend of the business activities of the company by performing horizontal
analysis over the years by considering 2004 as base year.
Question # 3:
From the condensed balance sheets as on December 31 and income statements for the years
ended December 31 2003-2008 of M corporation.
Condensed comparative balance sheets as on December 31 (Rs. in millions)
2003 2004 2005 2006 2007 2008
Assets
Current assets
Inventory 122 146 170 242 308 366
Receivables 130 134 144 270 320 340
Cash 36 50 66 38 34 38
Total current assets 288 330 380 550 662 744
Non current assets 304 310 312 620 650 600
Total assets 592 640 692 1,170 1,312 1,344

Liabilities and owners’

equity
Current liabilities 82 86 104 306 390 440
Long term debt 60 60 60 260 260 320
Total liabilities 142 146 164 566 650 760
Share capital 220 220 220 420 500 500
Retained earnings 230 274 308 184 162 84
Total owners’ equity 450 494 528 604 662 584

Condensed comparative income statement as on December 31 (Rs. in millions)

2003 2004 2005 2006 2007 2008
Sales 500 574 680 760 850 870
Cost of goods sold (326) (378) (456) (538) (616) (628)
Gross profit 174 196 224 222 234 242
Administrative expenses (110) (120) (150) (180) (212) (228)
Other expenses (8) (10) (4) (12) (10) (12)
Net income 56 66 70 30 12 2
Required:
1. Analyze the trend of the business activities and financial position of the corporation by
performing vertical analysis and horizontal analysis by taking 2003 as base year.
2. Comment on the performance of the company.