Accounting and Finance Foundations

Unit 11

Accounting and Finance Foundations Unit 11: Financial Analysis 824

Financial Analysis

Chapter 23

Student Guide

ABC Company

Comparative Balance Sheet

December 31, 2006 and 2005

Increase (Decrease)

2006 2005 Amount Percent

Assets

Current assets $550,000 $533,000 $17,000 3.20%

Long-term investment 95,000 177,500 (82,500) (46.50%)

Property, plant, and equipment 444,500 470,000 (32,500) (5.40%)

Intangible assets 50,000 50,000

Total assets $1,139,500 $1,230,500 ($91,000) (7.40%)

Liabilities

Current liabilities 210,000 243,000 (33,000) (13.60%)

Long-term liabilities 100,000 200,000 (100,000) (50%)

Total liabilities $310,000 $443,000 ($133,000) (30%)

Owner’s equity

Preferred stock 150,000 150,000

Common stock 500,000 500,000

Retained earnings 179,500 137,500 42,000 30.50%

Total owner’s equity 829,500 787,500 42,000 5.3%

Total liabilities and owner’s equity $1,139,500 $1,230,500 ($91,000) (7.40%)

ABC Company

Comparative Income Statement

For the Years Ended, December 31, 2006 and 2005

Increase (Decrease)

2006 2005 Amount Percent

Sales $ 1,530,500 $1,234,000 $296,500 24.00%

Sales returns and allowances 32,500 34,000 -1,500 (4.40%)

Net sales $1,498,000 $1,200,000 $298,000 24.80%

Cost of goods sold 1,043,000 820,000 223,000 27.20%

Gross profit $455,000 $380,000 $75,000 19.70%

Selling expenses $191,000 $147,000 $44,000 29.90%

Administrative expenses 104,000 97,400 6,600 6.80%

Total operating expenses $295,000 $244,400 $50,600 20.70%

Income from operations $160,000 $135,600 $24,400 18%

Other income $8,500 $11,000 ($2,500) (23%)

$168,500 $146,600 $21,900 14.90%

Other expenses 6,000 12,000 -6,000 (50.00%)

Income before income tax $162,500 $134,600 $27,900 20.70%

Income tax expense 71,500 58,100 13,400 23.10%

Net income $91,000 $76,500 $14,500 19.00%