Vertical analysis of income statement
The following income statement data (in millions) for Dell Inc. and Hewlett-Packard Company (HP) were taken from their recent annual reports:
a. Prepare a vertical analysis of the income statement for Dell. Round to one decimal place.
b. Prepare a vertical analysis of the income statement for HP. Round to one decimal place.
c. Based on (a) and (b), how does Dell compare to HP?
(a)
Vertical analysis:
Vertical analysis is the method of financial statement analysis, and it is useful to evaluating a company’s performance and financial condition. Vertical analysis is helpful for analyzing the changes in the financial statements over the time, and comparing the each item on a financial statement with a total amount from the same statement. In the vertical analysis, the financial statements are analyzed in the following manner:
To prepare: The vertical analysis of Company D’s income statement.
The vertical analysis of Company D’s income statement is as follows:
Company D | ||
Income statement | ||
Particulars | Amount $ (in millions) | Percent |
 Net sales |           62,071 | 100.0% |
Cost of goods sold (expense) | Â Â Â Â Â Â Â Â Â Â 48,260 | 77.8% |
Operating expenses | Â Â Â Â Â Â Â Â Â Â Â Â 9,380 | 15... |
(b)
To prepare: The vertical analysis of Company H’s income statement.
(c)
To compare: The vertical analysis of two companies’ income statement.
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