Lecture Practical business math procedures (10/e): Chapter 16 - Jeffrey Slater

Chapter 16 - How to read, analyze, and interpret financial reports. In this chapter, the learning objectives are: Explain the purpose and the key items on the balance sheet, explain and complete vertical and horizontal analysis, explain the purpose and the key items on the income statement, explain and complete vertical and horizontal analysis.

arative Income Statement For Years Ended December 31, 2010 and 2011  2011    2010                Increase (decrease)        Amount      Percent Sales                 $  90,000      $80,000 $10,000 Sales returns and allowances     2,000      2,000         0 Net Sales $88,000      $78,000  $10,000      +   12.82 Cost of merchandise sold   45,000     40,000      5,000  +   12.50 Gross profit from sales $43,000   $38,000  $  5,000  +   13.16 Operating expenses:                    Depreciation $  6,000  $  5,000  $  1,000  +   20.00   Selling and Advertising   16,000    12,000      4,000  +   33.33   Research        600      1,000            (400)      ­   40.00    Miscellaneous     1,200         500        700  + 140.00    Total operating expenses $23,800  $18,500  $ 5,300  +   28.65 Income before interest and taxes $19,200  $19,500 $   (300)   ­     1.54 Interest expense     4,000      4,000           0           Income before taxes $15,200 $15,500  $  (300)      ­     1.94 Provision for taxes     3,800          4,000      (200)      ­     5.00 Net income $11,400  $11,500  $  (100)      ­       .87 16­18 Completing a Trend Analysis Analyzes the changes that occur by expressing  each number as a percent of the base year                                                    Each Item Base Amount Step 1.   Select the  base year  (100%) 16­19 Step 2.  Express  each amount as a  percent of the base  year amount  (rounded to the  nearest whole  percent) Trend Analysis Given (base year 2009) 2012 2011 2010 2009 Sales $621,000 $460,000 $340,000 $420,000 Gross Profit   182,000   141,000   112,000   124,000 Net Income     48,000     41,000     22,000     38,000 Trend Analysis 2012 2011 2010 2009 Sales* 148% 110% 81% 100% Gross Profit 147 114 90 100 Net Income 126 108 58 100 * Round to nearest whole percent 16­20 $340,000 $420,000 ...                                     Each Item Base Amount Step 1.   Select the  base year  (100%) 16 19 Step 2.  Express  each amount as a  percent of the base  year amount  (rounded to the  nearest whole ... 81% 100% Gross Profit 147 114 90 100 Net Income 126 108 58 100 * Round to nearest whole percent 16 20 $340,000 $420,000