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Pros and Cons of Horizontal and Vertical Analysis - Essay Example
Author : niahyatt
Finance & Accounting
Pages 4 (1004 words)
Horizontal and vertical analyses are carried out in order to check the financial performance and position of the company either by based upon some specific criterion of line items or on period-to-period basis. The biggest advantage of these analyses is that these are easier to calculate as well as understand. …
The above table presents the horizontal analysis of Nike for the three quarters such as Q2, Q3 and Q4 ending November 2012, February 2013 and May 2013. In the horizontal analysis, each line item of income statement is divided by the total revenues figure in order to check the percentage of that line item with respect to sales. If cost of sales of Nike is considered, it can be observed that it has remained quite consistent in all the three quarters and remained around 56% of sales (Nike Inc., 2013). Accordingly, the gross profit margin of the company is around 44%. Nike incurs substantial expenditure over its demand creation activities such that this expenditure covers around 10% of sales every quarter. As far as operating overheads of the company are concerned, the company absorbs the expenditures at around 20% of sales level which remained consistent in previous three quarters. Similarly, selling and administrative expenses of the company are around 30% of the turnover of in each of the three quarters. Other incomes and interest incomes are nearly negligible such that they do not even constitute to 1% sales level. Income before taxes has been improved by 2% in third and fourth quarter as compared to second quarter. Income tax expenditure of the company is also improving, i.e. showing a very minute decline on quarter-level percentages. ...