Expanded (Horizontal and Vertical) Analysis on Financial Statements (Research Paper Sample)

Expanded (Horizontal and Vertical) Analysis on Financial Statements
Student’s Name
Institution’s Affiliation
Horizontal and Vertical Analysis
Introduction
This analysis was conducted to perform an expanded analysis of financial statements for the Coca – Cola Company (KO). Expanded study involves horizontal and vertical analysis. For vertical analysis, each amount on a given financial statement is expressed as a percentage of another item (Chen & Shimerda, 1981). Vertical analysis for a balance sheet involves computation of every amount as a percentage of the total assets while the vertical analysis of an income statement includes calculation of every amount as a percentage of sales (Chen & Shimerda, 1981). The horizontal investigation compares the financial statements over past years (Barnes, 1987). This analysis was also used to study, the ratio analysis which is a tool developed to conduct a quantitative analysis of the financial statements. The following financial ratios were considered in the analysis; inventory turnover, receivable turnover, gross profit margin, asset turnover, current ratio, quick ratio, cash ratio, and debt – to – assets ratio. Inventory turnover is calculated by dividing the cost of goods sold by the inventory while receivable turnover is obtained by dividing net revenue with average receivables (Altman, 1968). For the gross profit margin, gross income is divided by net revenue while the asset turnover is given by dividing net revenues by total assets (Ohlson, 1980). Current ratio compares the current assets to the current liabilities whereas quick ratio compares cash, short – term marketable securities and accounts receivables to current liabilities. Cash ratio is gotten by dividing cash and marketable securities by current liabilities and lastly, debt – to – assets ratio compares the as liabilities of a company to the assets (Lewellen, 2004). The credit worthiness of the firm was determined using Altman’s Z – score which determines if a firm will become bankrupt or not.
Z-Score = ([Working Capital / Total Assets] x 1.2) + ([Retained Earnings / Total Assets] x 1.4) + ([Operating Earnings / Total Assets] x 3.3) + ([Market Capitalization / Total Liabilities] x 0.6) + ([Sales / Total Assets] x 1.0) (Altman et.al, 2014)
If the Z – score is less than three then, the business is likely to become bankrupt whereas a Z – score greater than three shows financial soundness of a firm.
Data and Analysis
Balance Sheet







All numbers in thousands







Period Ending

12/31/2016

Vertical Analysis

12/31/2015

Vertical Analysis

12/31/2014

Vertical Analysis

Current Assets

 

 





Cash And Cash Equivalents

8,555,000

9.80%

7,309,000

8.12%

8,958,000

9.73%

Short Term Investments

13,646,000

15.64%

12,591,000

13.99%

12,717,000

13.82%

Net Receivables

3,856,000

4.42%

3,941,000

4.38%

4,466,000

4.85%

Inventory

2,675,000

3.07%

2,902,000

3.22%

3,100,000

3.37%

Other Current Assets

5,278,000

6.05%

6,652,000

7.39%

3,745,000

4.07%

Total Current Assets

34,010,000

38.97%

33,395,000

37.11%

32,986,000

35.85%

Long Term Investments

17,249,000

19.77%

15,788,000

17.54%

13,625,000

14.81%

Property Plant and Equipment

10,635,000

12.19%

12,571,000

13.97%

14,633,000

15.90%

Goodwill

10,629,000

12.18%

11,289,000

12.54%

12,100,000

13.15%

Intangible Assets

10,499,000

12.03%

12,843,000

14.27%

14,272,000

15.51%

Accumulated Amortization

-


-


-


Other Assets

4,248,000

4.87%

4,110,000

4.57%

4,407,000

4.79%

Deferred Long Term Asset Charges

-


-


-


Total Assets

87,270,000

100.00%

89,996,000

100.00%

92,023,000

100.00%

Current Liabilities

 

 





Accounts Payable

9,797,000

11.23%

9,991,000

11.10%

9,634,000

10.47%

Short/Current Long Term Debt

16,025,000

18.36%

15,805,000

17.56%

22,682,000

24.65%

Other Current Liabilities

710,000

0.81%

1,133,000

1.26%

58,000

0.06%

Total Current Liabilities

26,532,000

30.40%

26,929,000

29.92%

32,374,000

35.18%

Long Term Debt

29,684,000

34.01%

28,311,000

31.46%

19,063,000

20.72%

Other Liabilities

4,081,000

4.68%

4,301,000

4.78%

4,389,000

4.77%

Deferred Long Term Liability Charges

3,753,000

4.30%

4,691,000

5.21%

5,636,000

6.12%

Minority Interest

158,000

0.18%

210,000

0.23%

241,000

0.26%

Negative Goodwill

-


-


-


Total Liabilities

64,208,000

73.57%

64,442,000

71.61%

61,703,000

67.05%

Stockholders' Equity

 

 





Misc. Stocks Options Warrants

-


-


-


Redeemable Preferred Stock

-


-


-


Preferred Stock

-


-


-


Common Stock

1,760,000

2.02%

1,760,000

1.96%

1,760,000

1.91%

Retained Earnings

65,502,000

75.06%

65,018,000

72.25%

63,408,000

68.90%

Treasury Stock

-47,988,000

-54.99%

-45,066,000

-50.08%

-42,225,000

-45.89%

Capital Surplus

14,993,000

17.18%

14,016,000

15.57%

13,154,000

14.29%

Other Stockholder Equity

-11,205,000

-12.84%

-10,174,000

-11.30%

-5,777,000

-6.28%

Total Stockholder Equity

23,062,000

26.43%

25,554,000

28.39%

30,320,000

32.95%

Net Tangible Assets

1,934,000

2.22%

1,422,000

1.58%

3,948,000

4.29%

Balance Sheet



All numbers in thousands



Period Ending

Horizontal analysis between 2015 and 2016

Horizontal Analysis between 2014 and 2015

Current Assets



Cash And Cash Equivalents

14.56%

-22.56%

Short Term Investments

7.73%

-1.00%

Net Receivables

-2.20%

-13.32%

Inventory

-8.49%

-6.82%

Other Current Assets

-26.03%

43.70%

Total Current Assets

1.81%

1.22%

Long Term Investments

8.47%

13.70%

Property Plant and Equipment

-18.20%

-16.40%

Goodwill

-6.21%

-7.18%

Intangible Assets

-22.33%

-11.13%

Accumulated Amortization



Other Assets

3.25%

-7.23%

Deferred Long Term Asset Charges



Total Assets

-3.12%

-2.25%

Current Liabilities



Accounts Payable

-1.98%

3.57%

Short/Current Long Term Debt

1.37%

-43.51%

Other Current Liabilities

-59.58%

94.88%

Total Current Liabilities

-1.50%

-20.22%

Long Term Debt

4.63%

32.67%

Other Liabilities

-5.39%

-2.05%

Deferred Long Term Liability Charges

-24.99%

-20.14%

Minority Interest

-32.91%

-14.76%

Negative Goodwill



Total Liabilities

-0.36%

4.25%

Stockholders' Equity



Misc. Stocks Options Warrants



Redeemable Preferred Stock



Preferred Stock



Common Stock

0.00%

0.00%

Retained Earnings

0.74%

2.48%

Treasury Stock

6.09%

6.30%

Capital Surplus

6.52%

6.15%

Other Stockholder Equity

9.20%

43.22%

Total Stockholder Equity

-10.81%

-18.65%

Net Tangible Assets

26.47%

17.70%

Income Statement







All numbers in thousands







Revenue

12/31/2016

Vertical analysis

12/31/2015

Vertical Analysis

12/31/2014

Vertical Analysis

Total Revenue

41,863,000

100.00%

44,294,000

100.00%

45,998,000

100.00%

Cost of Revenue

16,465,000

39.33%

17,482,000

39.47%

17,889,000

38.89%

Gross Profit

25,398,000

60.67%

26,812,000

60.53%

28,109,000

61.11%

Operating Expenses
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