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Instructions For Unit #19 Vertical Analysis Income Statement Tutorial - Initial Tutorial - Completed

This document provides instructions for a vertical analysis income statement tutorial. It explains that the analysis examines percentages within a given year for two companies to allow comparison. Net sales will be used as the reference at 100% and all other items will be shown as a percentage of net sales. The user is asked to enter missing data into the income statement format for two companies, Lincoln and Madison, to complete the statement and calculations. The tutorial Completed shows the correct entries, calculations and analysis.

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Sinoe Meriam
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35 views2 pages

Instructions For Unit #19 Vertical Analysis Income Statement Tutorial - Initial Tutorial - Completed

This document provides instructions for a vertical analysis income statement tutorial. It explains that the analysis examines percentages within a given year for two companies to allow comparison. Net sales will be used as the reference at 100% and all other items will be shown as a percentage of net sales. The user is asked to enter missing data into the income statement format for two companies, Lincoln and Madison, to complete the statement and calculations. The tutorial Completed shows the correct entries, calculations and analysis.

Uploaded by

Sinoe Meriam
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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INSTRUCTIONS FOR UNIT #19 VERTICAL ANALYSIS INCOME STATEMENT TUTORIAL - INITIAL TUTORIAL - COMPLETED

INSTRUCTIONS FOR UNIT #19


~ Again will use percentages to examine income statements. As stated before, percentages reduce data to a common denominator. However, this time we are going to look at the data within a given year for two companies to allow a comparison. Think of these as two companies operating in the same industry. This is commonly referred to as Vertical Analysis, or down, as opposed to Horizontal Analysis, which is across. ~ The analysis will start with net sales as the reference, i.e. 100%. All items will be looked at as a percentage of net sales. For example, if net sales were $ 100, and cost of sales were $ 70, then the % for cost of sales to net sales is 70%. The idea is to look at each component to sales, or to say it another way, for every dollar of sales, how much went to cost of goods sold, operating expenses, etc. Hence the idea for vertical or down analysis. Accordingly, the spreadsheet has been programmed to make certain calculations, e.g. gross profit as net sales - cost of goods sold, income taxes as a % of net income before taxes, etc. As you enter data these calculations are made and the percentages of each component to net sales are computed. If you are not sure of a calculation or any entry, look at the formula bar for the respective cell to see how it was programmed. There may be cases where rounding percentages was necessary, so .0001 was added or subtracted as needed. ~ Select the tutorial Initial. You will find the income statement format for two companies to allow comparison. For both companies, data must be entered to complete the statement and make the % calculations. You will enter the missing data (below). In addition to the statement and percentages, certain key data has been copied to the bottom to highlight the analysis. ~ Enter the following data in their appropriate cells: Lincoln Sales returns and allowances Cost of goods sold Selling expenses Administrative expenses Interest income Interest expense 20 800 125 100 20 15 Madison 50 1,000 125 125 15 12

~ The tutorial Completed has the correct entries, calculations, percentages, key data. An analyst would look carefully at the percentages and note critical differences.

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