Textbook Problem

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.