Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 1FSC
Financial Statement Analysis Case 1: Vertical Analyses of Johnson & Johnson and Pfizer Inc.
Pfizer Inc. is a US company that manufactures and distributes pharmaceutical and consumer healthcare products that are similar to those sold by Johnson & Johnson. Use the excerpts of Johnson & Johnson's and Pfizer's income statements to answer the following questions.
- a. Compute each line item as a percentage of sales for both companies.
- b. If sales are used as a measure of size: which company is larger?
- c. Which company has a higher cost of goods sold relative to sales?
- d. Which company has higher selling, general, and administrate expenses relative to sales?
- e. Which company has higher research and development expenses relative to sales?
- f. Which company has a higher income from continuing operations relative to sales? Comment on the difference or lack of difference given other relationships observed.
- g. Which company has a higher profit margin? Comment on the difference between the two companies.
| Johnson & Johnson | Pfizer | |||||
| (amounts in millions)*' * The captions for some lines have been changed for consistency in comparing the two companies. |
2016 | 2010 | ||||
| Net Sales | $71,890 | $52,824 | ||||
| Cost of Goods Sold | 21,685 | 12,329 | ||||
| Gross Profit | 50,205 | 40,495 | ||||
| Selling. General, and Administrative Expenses | 19,945 | 14,837 | ||||
| Research and Development Expenses | 9,095 | 7,872 | ||||
| In-Process Research and Development | 29 | 0 | ||||
| Amortization of Intangible Assets | - | 4,056 | ||||
| Restructuring Charges Net | 491 | 1,724 | ||||
| interest Expense | 726 | - | ||||
| Interest Income | (368) | - | ||||
| Other Expense (income) Net | ___484 | ___3655 | ||||
| Income from Continuing Operations Before Income Taxes | 19,803 | 8,351 | ||||
| Income Tax expense | ___3,263 | _1,123 | ||||
| Income from Continuing Operations | $16,540 | $ 7,229 | ||||
| Income from Discontinued Operations, Net of Income Taxes | _____ | ___17 | ||||
| Net Income Before Noncontrolling Interests | $16,540 | $ 7,246 | ||||
| Income Attributable to Noncontrolmg interests | _____ | ____31 | ||||
| Net income | $ 16,540 | $ 7,215 | ||||
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VII. Direction: Compute and interpret.
The following comparative financial statements are provided by Avatar Industries. You were asked
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AVATAR INDUSTRIES
AVATAR INDUSTRIES
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2019
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P65,000
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185,000
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100,000
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60,000
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Preparing common-size income statement
Data for Connor Inc and Alto Corp follow:
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Prepare common-size income statements.
Which company earns more net income?
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VII. Direction: Compute and interpret.
The following comparative financial statements are provided by Avatar Industries. You were asked
to compute the different financial ratios and provide your interpretations with regards to
profitability, efficiency, liquidity and solvency of the company. Use the Answer Sheet template
below to input your answer and solution.
AVATAR INDUSTRIES
AVATAR INDUSTRIES
Comparative Statement of Financial Position
For the years 2019 and 2018
Comparative Income Statement
For the years 2019 and 2018
2019
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Current Assets:
Sales
P200,000
P210,000
Cash & Cash Equivalent
P65,000
P70,000
Sales Returns and Allowances
40,000
25,000
Accounts Receivable
40,000
35,000
Net Sales
160,000
185,000
Marketable Securities
40,000
35,000
Cost of Goods Sold
100,000
115,625
Inventory
100,000
80,000
Gross Profit
60,000
69,375
Total Current Assets
245,000
220,000
Operating Expenses:
Fixed Assets
200,000
160,000
Selling Expenses
22,000
25,000
Total Assets
P445,000…
Chapter 5 Solutions
Intermediate Accounting (2nd Edition)
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