may be presented in supporting schedules. In such schedules, the percentage analysis
may be based on either the total of the schedule or the statement total. Although ver-
tical analysis is limited to an individual statement, its significance may be improved
by preparing comparative statements.
In vertical analysis of the balance sheet, each asset item is stated as a percent of the
total assets. Each liability and stockholders’ equity item is stated as a percent of the to-
tal liabilities and stockholders’ equity. Exhibit 3 is a condensed comparative balance
sheet with vertical analysis for Pixar. On January 3, 2004, current assets were 72.6% of
total assets, and property and equipment was 11.5% of total assets. On January 1, 2005,
the current assets increased slightly to 73.6% of total assets, while property and equip-
ment declined to 9.9% of total assets. The total liabilities as a percent of the total declined
by 1.8% (from 6.1% to 4.3%), while stockholders’ equity as a percent of the total in-
creased by 1.8% (from 93.9% to 95.7%).
In a vertical analysis of the income statement, each item is stated as a percent of
net sales. Exhibit 4 is a condensed comparative income statement with vertical analy-
sis for Pixar. The vertical analysis indicates that the net income as a percentages of sales
improved by 4.3% (51.8%47.5%) between the two years. This improvement is largely
explained by the improvement in the gross profit as a percent of sales between the two
years. The other income statement items had smaller relative changes as a percent of
sales between the two years. Clearly, Pixar has experienced great success with its film
production business, earning net income of approximately 50% of sales for the two years.634 Chapter 14 Financial Statement Analysis
Exhibit 3
Comparative Balance
Sheet—Vertical
AnalysisPixar
Comparative Balance Sheets (In millions)
January 1, 2005, and January 3, 2004Jan. 1, 2005 Jan. 3, 2004
Amount Percent Amount Percent
Assets
Cash and cash equivalents $ 28.7 2.2% $ 48.3 4.8%
Investments 826.1 64.8 473.6 47.2
Accounts receivable, net 82.0 6.4 204.9 20.5
Prepaid expenses and other assets 2.2 0.2 1.0 0.1
Total current assets $ 939.0 73.6% $ 727.8 72.6%
Film inventory 140.0 11.0 107.7 10.7
Property and equipment, net 125.6 9.9 115.0 11.5
Other assets 70.4 5.5 51.5 5.1
Total assets $1,275.0 100.0% $1,002.0 100.0%
Liabilities
Accounts payable $ 5.4 0.4% $ 1.8 0.2%
Income taxes payable 14.0 1.1 37.6 3.7
Other accrued liabilities 27.0 2.1 13.0 1.3
Unearned revenue 8.5 0.7 9.1 0.9
Total liabilities $ 54.9 4.3% $ 61.5 6.1%
Stockholders’ Equity
Common stock, no par value $ 687.4 53.9% $ 547.0 54.7%
Retained earnings 534.9 42.0 393.2 39.2
Accumulated other comprehensive
income (loss) (2.2) 0.2 0.3 0.0
Total shareholders’ equity $1,220.1 95.7% $ 940.5 93.9%
Total liabilities and
shareholders’ equity $1,275.0 100.0% $1,002.0 100.0%Pixar’s balance sheet as
reported to the Securities
Exchange Commission (SEC)
does not classify current
assets separately. Our classi-
fication above is provided to
illustrate ratios using the
current asset designation,
and represents the authors’,
and not Pixar’s estimate of
currency. For example, the
investments could be either
current or noncurrent based
upon management judgment.
The balance sheet for Pixar
as reported to the SEC isThe Role of Accounting in Business
the book for comparison
purposes. Note that the actual
titles for accounts used by
Pixar have in some cases
been simplified above for
instructional purposes.