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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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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:

Chapter 3, Problem 3.29EX, Vertical analysis of income statement The following income statement data (in millions) for Dell

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)

To determine

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:

  • In vertical analysis of a balance sheet, each asset item is stated as a percent of the total asset, and each liability and owner’s equity item is stated as a percent of total liabilities and owner’s equity.
  • In vertical analysis of an income statement, each item of revenue and expense is stated as a percent of total revenues of the business.

To prepare: The vertical analysis of Company D’s income statement.

Explanation

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)            48,260 77.8%
Operating expenses              9,380 15...

(b)

To determine

To prepare: The vertical analysis of Company H’s income statement.

(c)

To determine

To compare:  The vertical analysis of two companies’ income statement.

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