To simplify, the current liabilities and stockholders’ equity are shown as a single
amount. A review of Exhibit 9 reveals the liabilities as a percent of total liabilities and
stockholders’ equity increased by 3.2 (31.2%28.0%) percentage points, while the stock-
holders’ equity decreased by 3.2 (72.0%68.8%) percentage points between the com-
parative years. Other than this minor change, no major changes occurred in the makeup
of Wrigley’s December 31 balance sheets for 2004 and 2003.
In vertical analysis of the income statement, each item is stated as a percent of sales.
To illustrate, Exhibit 10 shows comparative income statements of Wm. Wrigley Jr.
Company, using vertical analysis.
Exhibit 10 reveals a slight decline in overall net income as a percent of sales from
14.6% to 13.6% between the two years. Gross profit as a percent of sales declined over
a full percentage point from 57.1% to 55.9%. In addition, selling and administrative
expenses increased slightly as a percent of sales from 35.9% to 36.1%. As a result,70 Chapter 2 Basic Accounting Concepts
December 31, 2004 December 31, 2003
Amount Amount
(millions) Percent (millions) PercentAssets:
Cash and cash equivalents $ 629 19.9% $ 505 20.0%
Short-term investments 23 0.7 23 0.9
Accounts receivable 356 11.2 329 13.0
Inventories 398 12.6 350 13.9
Property, plant, and equipment 1,143 36.1 956 37.8
Other assets 618 19.5 365 14.4
TOTAL ASSETS $3,167 100.0% $2,528 100.0%Liabilities:
Current liabilities $ 718 22.7% $ 472 18.7%
Long-term liabilities 270 8.5 235 9.3
Total liabilities $ 988 31.2% $ 707 28.0%
Stockholders’ equity:
Total stockholders’ equity $2,179 68.8% $1,821 72.0%
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY $3,167 100.0% $2,528 100.0%Exhibit 9
Comparative Balance
Sheets Using
Vertical Analysis:
Wm. Wrigley Jr.
Company2004 2003
Amount Amount
(millions) Percent (millions) PercentNet sales $3,649 100.0% $3,069 100.0%
Cost of sales 1,610 44.1 1,317 42.9
Gross profit $2,039 55.9% $1,752 57.1%
Selling and administrative expenses 1,319 36.1 1,102 35.9
Operating income $ 720 19.8% $ 650 21.2%
Other income (expense) — 0.0 2 0.1
Income before income taxes $ 720 19.8% $ 652 21.3%
Income taxes 227 6.2 206 6.7
Net income $ 493 13.6% $ 446 14.6%Exhibit 10
Comparative Income
Statements Using
Vertical Analysis:
Wm. Wrigley Jr.
Company for Years
Ending December 31,
2003 and 2004