Question

The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Required: 1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. 2-b. Excluding income tax and other operating costs, did Insignia earn more profit per dollar of revenue in 2015 compared to 2014?

Answer 1

Answer and Explanation:

As per the data given in the question,

1)

Insignia Corporation

Income Statements

For the year ended Dec-31

Change in

Particulars 2015 2014 Dollars %

Revenues 126 266 -140 -52.6%

Cost of crude oil and products 63 153 -90 -58.8%

Other operating costs 61 55 6 10.9%

Income before income tax expense 2 58 -56 -96.6%

Income tax expense 0 30 -30 -100.0%

Net income 2 28 -26 -92.9%

2-a)

Insignia Corporation

Income Statements

For the year ended Dec-31

2015 2014

Revenues 126 100.0% 266 100.0%

Cost of crude oil and products 63 50.0% 15.3 57.5%

Other operating costs 61 49.4% 55 20.7%

Income before income tax expense 2 1.6% 58 21.8%

Income tax expense 0 0.0% 30 11.3%

Net income 2 1.6% 28 10.5%

2-b)

No, Insignia earned $0.575 per dollar of revenue in 2015 but it earned only $0.500 per dollar of revenue in 2015.