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Accounting (Text Only)
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:
- 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.
The vertical analysis of Company D’s income statement is as follows:
| Company D | ||
| Income statement | ||
| Particulars | Amount $ (in millions) | Percent |
| Â Net sales | Â Â Â Â Â Â Â Â Â Â 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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