Question

Operating data for Martinez Corp. are presented below. 2022 2021 Sales revenue $842,600 $639,100 Cost of goods sold 529,000 410,400 Selling expenses 123,900 76,300 Administrative expenses 73,000 52,400 Income tax expense 37,700 23,100 Net income 79,000 76,900 Prepare a schedule showing a vertical analysis for 2022 and 2021

Answer 1

Martinez Corp.

Schedule showing a vertical analysis for 2022 and 2021:

2022 % 2021 %

Sales revenue $842,600 100 $639,100 100

Cost of goods sold 529,000 62.8 410,400 64.2

Gross Profit 313,600 37.2 228,700 35.8

Selling expenses 123,900 14.7 76,300 11.9

Administrative expenses 73,000 8.7 52,400 8.2

Income before Taxes 189,700 22.5 100,000 15.6

Income tax expense 37,700 4.5 23,100 3.6

Net income 79,000 9.4 76,900 12

Step-by-step explanation:

a) Vertical analysis is a method of analyzing financial statements in which each line item is listed as a percentage of a base figure within the statement. Usually, the base figure used is the Sales Revenue for the Income Statement and Total Assets for the Balance Sheet.

b) The formulas for the Vertical Analysis are as follows:

Vertical Analysis formula = Individual Item / Base Amount *100

i) Vertical Analysis Formula (Income Statement) = Income Statement Item / Total Sales * 100.

ii) Vertical Analysis Formula (Balance Sheet) = Balance Sheet Item / Total Assets (Liabilities) * 100.