Vertical analysis: Vertical analysis is the method of financial statement analysis, and it is useful to evaluating a company’s performance and financial condition. Vertical analysis is helpful for analyzing the changes in the financial statements over the time, and comparing the each item on a financial statement with a total amount from the same statement. In the vertical analysis, the financial statements are analyzed in the following manner: In vertical analysis of a balance sheet , each asset item is stated as a percent of the total asset, and each liability and owner’s equity item is stated as a percent of total liabilities and owner’s equity. In vertical analysis of an income statement , each item of revenue and expense is stated as a percent of total revenues of the business. To determine: The amount and percentage of change in the net income from year 1 to year 2.

Question

Vertical analysis The following data are taken from recent financial statement of Nike, Inc. (in millions): Year 2 Year 1 Sales (revenues) $30,601 $27,799 Net income 3,273 2,693 a. Determine the amount of change (in millions) and percent of change in net income from Year 1 to Year 2. Round to one decimal place. Amount: $ Percentage: b. Determine the percentage relationship between net income and sales for Year 2 and Year 1. Round to one decimal place. Year 1: Year 2:

Answer 1

Question

Chapter 3, Problem 3.29EX

(a)

To determine

Vertical analysis:

Vertical analysis is the method of financial statement analysis, and it is useful to evaluating a company’s performance and financial condition. Vertical analysis is helpful for analyzing the changes in the financial statements over the time, and comparing the each item on a financial statement with a total amount from the same statement. In the vertical analysis, the financial statements are analyzed in the following manner:

In vertical analysis of a balance sheet, each asset item is stated as a percent of the total asset, and each liability and owner’s equity item is stated as a percent of total liabilities and owner’s equity.

In vertical analysis of an income statement, each item of revenue and expense is stated as a percent of total revenues of the business.

To determine: The amount and percentage of change in the net income from year 1 to year 2.

(b)

To determine

The percentage relationship between net income and sales of year 2 and year 1.

(c)

To determine

To explain: The conclusion drawn from the analysis.

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