Prepare horizontal analysis of the balance sheet data


Problem 1. Prepare horizontal and vertical analyses.

The comparative balance sheets of Philip Morris Companies, Inc. are presented here.

PHILIP MORRIS COMPANIES, INC.
Comparative Balance Sheets
December 31
($ in millions)

Assets                                               2004                  2003

Current assets                                    $25,901             $21,382

Property, plant, and equipment (net)      16,305               16,067

Other assets                                         59,442               58,726  

Total assets                                       $101,648              $96,175

Liabilities and Stockholders' Equity

Current liabilities                                  $23,574              $21,393

Long-term liabilities                                47,360               49,705

Stockholders' equity                               30,714               25,077

Total liabilities and stockholders equity  $101,648              $96,175

Instructions:

Prepare horizontal analysis of the balance sheet data for Philip Morris using 2003 as a base. (Show the amount on increase or decrease as well.) Prepare a vertical analysis of the balance sheet data for Philip Morris for 2004.

Problem 2. Prepare horizontal and vertical analyses.

Here are the comparative income statements of Erik Corporation.

ERIK CORPORATION
Comparative Income Statement
For the Years Ended December 31

                                           2007                       2006

Net sales                            $572,000              $520,000

Cost of goods sold                477,000                450,000

Gross profit                          $95,000                $70,000

Operating expenses                60,000                  45,000  

Net income                           $35,000                 $25,000

Instructions:

Prepare a horizontal analysis of the income statement data for Erik Corporation using 2006 as a base. (Sow the amounts of increase or decrease). Prepare a vertical analysis of the income statement for Erik Corporation for both years.

Problem 3. Compute liquidity ratios.

Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data (in millions) for 2005 are presented

                                                 End of Year         Beginning of Year

Cash and cash equivalents           $360.3                   $340.3

Receivables (net)                          645.7                     666.8

Merchandise inventory                   917.2                     901.6

Other current assets                      649.2                     616.1

Total current assets                   $2,572.4                  $2,524.8

                                                                                          

Total current liabilities                $1,341.2                   $1,122.6

For the year, net credit sales were $7,131.4 million, cost of goods sold was $4,559.4 million, and cash from operations was $660.3 million.

Instructions:

Compute the current ratio, current cash debt coverage ratio, receivables turnover ratio, average collection period, inventory turnover ratio, and days in inventory at the end of the current year.

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Accounting Basics: Prepare horizontal analysis of the balance sheet data
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