Conduct a vertical analysis

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Reference no: EM133000519

Assignment Two

1. The management of XYZ Company provides you with comparative balance sheets of the years ended December 31, 2012 and 2011. Management asks you to prepare a horizontal analysis on the information.

XYZ CORPORATION
Comparative Income Statements
For the Years Ended December 31, 2012 and 2011

Increase (Decrease)

 

2012

2011

Amount

%

Net sales

$          520,000

$          480,000

$             40,000

8.3

Cost of goods sold

360,000

315,000

45,000

14.3

Gross margin

160,000

165,000

(5,000)

(3.0)

Operating expenses

128,600

126,000

2,600

2.1

Net operating income

31,400

39,000

(7,600)

(19.5)

Interest expense

6,400

7,000

(600)

(8.6)

Net income before taxes

25,000

32,000

(7,000)

(21.9)

Less income taxes (30%)

7,500

9,600

(2,100)

(21.9)

Net income

$           17,500

$         22,400

$            (4,900)

(21.9)

 

 

 

 

As indicated in table above sales increased by 8.3% while net income decreased by 21.9%. You identified that there were increases in both cost of goods sold (14.3%) and operating expenses (2.1%). These increased costs more than offset the increase in sales, yielding an overall decrease in net income. You already identified the Couse of the problem. Therefore, what are the possible actions should be taken to eliminate the reduction of the net income?

2. Assume you are a manager of XY Company, while you conduct a vertical analysis it is identified that 85% of the company expenses are incurred for salary. This intern highly affected the profitability of the organization. As a manager what are the possible remedial actions that you suppose to take in order to mitigate this drawbacks?

Reference no: EM133000519

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