Financial Statement Analysis Problem: Please refer to Problem 14-6 on page 755 i

Question

Financial Statement Analysis Problem: Please refer to Problem 14-6 on page 755 in the textbook. Perform a vertical and horizontal analysis of the Corbin Company's Income Statements and Balance Sheets. Comment on what you feel are the 4 most significant issues present in, first, the Balance Sheets and, then, the Income Statements (8 issues altogether). Use an Excel spreadsheet to perform the calculations. Ignore the problem's request for ratios. Just use the financial information to perform your FSA. Limit your text to no more than 3 pages.

Explanation / Answer

Balance sheet Assets 2015 vertical Analysis 2014 vertical Analysis Horizontal analysis % of Total Assets % of Total Assets Increase or Decrease from 2014 to 2015 Current assets Cash $21,000 3% $18,000 3% 0% Short term investments $18,000 3% $15,000 3% 0% Account receivable $91,000 14% $74,000 13% 1% Inventory $85,000 13% $70,000 13% 1% Total Current assets $215,000 34% $177,000 32% 2% Plant assets $423,000 66% $383,000 68% -2% Total assets $638,000 100% $560,000 100% 0% Liabilities and Stockholder's Equity 2014 % Total liabilities and stock holders equity 2015 % Total liabilities and stock holders equity Current liabilities Accounts payable $122,000 19% $110,000 20% -1% Income tax payable $23,000 4% $20,000 4% 0% Total current liabilities $145,000 23% $130,000 23% 0% Long term liabilities Bonds payable $120,000 19% $80,000 14% 5% Total liabilities $265,000 42% $210,000 38% 4% Stockholders equity Common stock $150,000 24% $150,000 27% -3% Retained earnings $223,000 35% $200,000 36% -1% Total Stockholders equity $373,000 58% $350,000 63% -4% Total liabilities and stock holders equity $638,000 100% $560,000 100% 0% Comments Current assets are increased by 2% and no change in urgent liabilities. It is good for the company , because current ration will increase. However, Cost of working capital will increases Account payable balance is decreased. Hence it indicated good collection procedures are maintained Debt equity ratio was increased as % of debt increased by 4% Company is not working well as % of retained earnings were decreased from the previous year Income statement 2015 vertical Analysis 2014 vertical Analysis Horizontal analysis % of Sales % of Sales Increase or Decrease from 2014 to 2015 Net sales $595,000 100% $520,000 100% Expenses COGS $415,000 70% $354,000 68% 2% Sell& Adm $120,800 20% $114,800 22% -2% Interest exp $7,800 1% $6,000 1% 0% Income tax expe $15,000 3% $14,000 3% 0% Total expenses $558,600 94% $488,800 94% 0% Net income $36,400 6% $31,200 6% 0% Comments % of gross profit is decreased as increase in % of COGS. It is not a good sign hence it will lead to loss of market share of the company There is no growth in Net profit in the company. Hence company is working stable but not showing any growth.

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