Preparing Common Size Statements

The financial statements for Burch Industries follow:

Required:

1. Prepare common size income statements to be used for horizontal analysis for Burch for 2017 to 2019 (in percentage terms, rounded to two decimal places). Utilize 2017 as the base year for both 2018 and 2019. You do not need to include the actual dollar amounts shown above.

2. CONCEPTUAL CONNECTION Indicate why Burch’s net income increased between 2017 and 2019.

3. Prepare common size balance sheets to be used for vertical analysis for 2019 and 2018 (in percentage terms. rounded to two decimal places). You do not need to include the actual dollar amounts shown above.

4. Indicate whether the proportion of dollars invested in the various categories of assets has changed significantly between 2018 and 2019.

5. Indicate whether the proportion of capital raised from the various liability categories and common stockholders equity has changed significantly between 2018 and 2019.

6. CONCEPTUAL CONNECTION Describe Burch’s performance and financial position.

(a)

Common size analysis can be led in two different ways, i.e., vertical analysis and horizontal analysis. Vertical analysis alludes to the analysis of explicit details in connection to a base thing inside the equivalent money related period. For instance, in a critical position sheet, we can survey the extent of stock.

To discuss:

Prepare common size income statement to be used for horizontal analysis for Burch 2017 to 2019. Utilize 2017 as the base year for 2018 and 2019.

In this calculation 1 formula is used

For 2019 year = 2019 amount2017 amount×100

(b)

Net income increase shows that what types of effect in the income statement, so increase the net income.

To discuss:

Why net income percentage increase from 2017 to 2019.

(c)

Balance sheet is the main statement of any business which shows the real figure of particular company, and after the company balance sheet company can analysis of any types like debt to equity ratio any many more.

To discuss:

Prepare common size statement of balance sheet to be used vertical analysis for 2018 and 2019.

(d)

Balance sheet is the main statement of any business which shows the real figure of particular company, and after the company balance sheet company can analysis of any types like debt to equity ratio any many more.

Company also identity that how much company invest in the different types of assets.

To discuss:

Indicate whether the proportion of dollars invested in the various categories of assets has changed significantly between 2018 to 2019.

(e)

Capital raised means company taking some amount of borrowing for the purpose of increase the profit amount also increase the company manufacturing or production.

To discuss:

How much amount of capital raised from the various categories of assets has changed significantly between 2018 to 2019.

(f)

An organization’s balance sheet, otherwise called an "announcement of financial position," uncovers the company’s assets, liabilities and owners' equity (total assets). The balance sheet, together with the salary proclamation and income explanation, make up the foundation of any organization’s financial.

To discuss:

Discuss the financial statement.