1. Comparative Analysis (horizontal) and Common-size Analysis (vertical) AND Fin
ID: 2450863 • Letter: 1
Question
1. Comparative Analysis (horizontal) and Common-size Analysis (vertical) AND Financial Ratio Analysis. The following condensed income statement and balance sheet are for CISCO Corporation, a large network company (dollars in thousands).
CISCO
2012 Annual Report
Consolidated Income Statement
CISCO
2012 Annual Report
Consolidated Balance Sheet
Total Assets
a. Prepare a comparative analysis (horiztonal) and a common-size analysis (vertical) of the income statement and balance sheet statement from 2012 and 2011. (Round computations to at least one decimal place.)
b. Compute the following ratios (round computations to at least one decimal place) for 2012 and 2011, and write at least ONE sentence – did the ratio improve (get worse) and why?
Show computations:
(1) Current ratio
(2) Working capital
(3) Receivables turnover ratio (AVERAGE receivables in '11 = $3,000)
(4) Inventory turnover ratio (AVERAGE inventory in '11 = $1,200)
(5) Gross margin ratio
(6) Profit margin ratio
(7) Debt to assets ratio
(8) Earning per Share (weighted average shares outstanding totaled 6,500 shares in '12 and 6,200 shares in '11).
(9) P/E ratio (Stock price in '12 – $22, '11 – $18)
(10) Return on assets (AVERAGE assets 2011 = $35,000)
Finally, would you invest in this company based on the above ratios, use some substance as to why it makes sense to invest? Why did ratios improve or weaken?
2012 2011 Sales $36,000 $28,500 Cost of Goods Sold 12,500 9,700 Gross Profit 23,500 18,800 Operating Expenses 13,500 11,700 Operating Income 10,000 7,100 Net Income $7,500 $5,600Explanation / Answer
a. Prepare a comparative analysis (horiztonal) and a common-size analysis (vertical) of the income statement and balance sheet statement from 2012 and 2011. (Round computations to at least one decimal place.) Ans) Horizotal analysis Vertical Analysis 2011 2012 Different Percentage 2011 Different 2012 Different Sales 36000 28500 -7500 -21% Sales 36000 100% 28500 100% Cost of goods Sold 12500 9700 -2800 -22% Cost of Goods Sold 12500 35% 9700 34% Gross Profit 23500 18800 -4700 -20% Gross Profit 23500 18800 Operating Expenses 13500 11700 -1800 -13% Operating Expenses 13500 38% 11700 41% Operating income 10000 7100 -2900 -29% Operating income 10000 28% 7100 25% Net income 7500 5600 -1900 -25% Net Income 7500 21% 5600 20% CISCO 2012 Annual Reposting Consolidated Report CISCO 2012 Annual Reposting Consolidated Report 2012 2011 Different Percentage 2012 Different 2011 Different Cash $ 4,800 $ 3,300 $ 1,500 45% Cash $ 4,800 10% $ 3,300 9% Market Securities $ 18,500 $ 14,500 $ 4,000 28% Market Securities $ 18,500 39% $ 14,500 39% Accounts Receivable $ 4,000 $ 3,300 $ 700 21% Accounts Receivable $ 4,000 8% $ 3,300 9% Inventory $ 1,400 $ 1,300 $ 100 8% Inventory $ 1,400 3% $ 1,300 4% Current Assets $ 28,700 $ 22,400 $ 6,300 28% Current Assets $ 28,700 61% $ 22,400 60% Property, Plant, Equipment $ 3,900 $ 3,400 $ 500 15% Property, Plant, Equipment $ 3,900 8% $ 3,400 9% Intangibles $ 14,500 $ 11,300 $ 3,200 28% Intangibles $ 14,500 31% $ 11,300 30% Total Assets $ 47,100 $ 37,100 $ 10,000 27% Total Assets $ 47,100 100% $ 37,100 100% Accounts Payable $ 5,000 $ 4,200 $ 800 19% Accounts Payable $ 5,000 11% $ 4,200 11% Deferred Revenue $ 5,200 $ 4,000 $ 1,200 30% Deferred Revenue $ 5,200 11% $ 4,000 11% Other Liabilities $ 3,400 $ 3,600 $ (200) -6% Other Liabilities $ 3,400 7% $ 3,600 10% Current Liabilities $ 14,100 $ 11,800 $ 2,300 19% Current Liabilities $ 14,100 30% $ 11,800 32% Long Term Debt $ 5,000 $ 4,800 $ 200 4% Long Term Debt $ 5,000 11% $ 4,800 13% Total Equity $ 28,000 $ 20,500 $ 7,500 37% Total Equity $ 28,000 59% $ 20,500 55% Total Liabilities & Equity $ 47,100 $ 37,100 $ 10,000 27% Total Liabilities & Equity $ 47,100 100% $ 37,100 100% b. Compute the following ratios (round computations to at least one decimal place) for 2012 and 2011, and write at least ONE sentence – did the ratio improve (get worse) and why? 2012 2011 (1) Current ratio = Current Assets 28700 2.0 22400 1.9 Current Liability 14100 11800 Current Ration has been increased 0.1 percent compared to last year (2) Working capital = Current Assets- Current Liability 14600 10600 (3) Receivables turnover ratio (AVERAGE receivables in '11 = $3,000) = Average Receivable / Sales Average Receivable = (Open period Account receivable+ Closing period account receivable)/Sales v 3650/28500 3000/36000 13% 8% Account Receivable ration has been decrease from 11% to 10%. It is good sign (4) Inventory turnover ratio (AVERAGE inventory in '11 = $1,200) 1350/28500 1200/36000 5% 3% Average Inventory for 2012 = (1400+1300)/2 1350 Average Inventory for 2011 = 1200 (5) Gross margin ratio = Gross Margin/Sales 18800/28500 23500/36000 66% 65% (6) Profit margin ratio Net profit / Sales 5600/28500 7500/36000 20% 21% (7) Debt to assets ratio = Total Liabilities 19100/47100 16600/37100 Total Assets 41% 45% (8) Earning per Share (weighted average shares outstanding totaled 6,500 shares in '12 and 6,200 shares in '11). Net Profit / Total Shares 5600/6500 7500/6200 0.8615385 1.2096774 Earning Per share has decreased from so much (9) P/E ratio (Stock price in '12 – $22, '11 – $18) = Price/ Earning Per Share (22/0.861538) (18/1.209677) 25.535728 14.880005 Price to Earning ratio has increase from 14.88 to 25.53 percent (10) Return on assets (AVERAGE assets 2011 = $35,000) = Net income $ 5,600 $ 7,500 (10) Return on assets (AVERAGE assets 2011 = $35,000) Total Assets $ 42,100 13% $ 35,000 21% Retun on assets has been decresed from 21% to 13%. Baisce in the above ratio we better to invest in the company
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