Question

2. You receive the following partial balance sheet (Table 4–5) for 2013 and 2012 for a...

2. You receive the following partial balance sheet (Table 4–5) for 2013 and 2012 for a company that you are considering making an investment in. Perform a vertical analysis for each year on these accounts. Compare the two years, and describe those changes that were beneficial or detrimental to this company in one sentence

3You were not totally satisfied with the vertical analysis, so you now want to run a horizontal analysis of this company. Complete Table 4–6. Perform a TABLE 4–5 Balance Sheet, Sample Company Category 2012 Vertical Analysis 2012 2013 Vertical Analysis 2013 Current assets $ 7,000,000 $ 9,000,000 Total fixed assets 8,000,000 6,000,000 Total assets 15,000,000 15,000,000 Current liabilities $ 3,000,000 $ 1,000,000 Long term debt 4,000,000 4,000,000 Owner’s equity 8,000,000 10,000,000 Total liabilities & owner’s equity $15,000,000 $15,000,000 Exercises and Problems 119 horizontal analysis on these accounts. Compare the changes in accounts, and describe the changes that were beneficial or detrimental to this company in one sentence.

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Answer #1

Answer 2:

Increase in net working capital financed with increase in equity and decrease in fixed assets is resulting idle cash and reduction in operations which is detrimental to the company.   

Answer 3:

The company is financing its current assets and reducing its current liabilities by issuing equity and selling fixed assets which is detrimental to the company.

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