Question 1(Jessica) The main difference between horizontal and vertical financial statements is that horizontal financial statements compare values over a series of years, usually over a two-year period where vertical statements are only over a one-year time frame

Subject:BusinessPrice: Bought3

Share With

Question 1(Jessica)

The main difference between horizontal and vertical financial statements is that horizontal financial statements compare values over a series of years, usually over a two-year period where vertical statements are only over a one-year time frame.  This allows companies to easily compare years instead of having to flip annual statements back and forth.  Starbucks’ accounts receivables increased slightly between 2019 and 2020, which increases their assets.  Just like many businesses during 2020 took a hit due to COVID, Starbucks was no different.  This made it seem like Starbucks was not doing very well, which from an investors point of view, reflects negative.  However, after reviewing the horizontal statements between 2018, 2019, and 2020 it shows that the business did better between 2018 and 2019.  2020 took a hit because of all the lock downs that happened due to pandemic that took place.  If I was looking into investing into Starbucks, I would not let the numbers deter me knowing what caused the decline in income in 2020.

 

(in millions)

 

Balance Sheet                                     2020                2019                Dollars            Percent

Accounts Receivable                          883                  879                  4                      1%

 

Income Statement                               2019                2018                Dollars            Percent

Interest Expense                                 (331)               (170)               (161)               (1.2)

 

Statement of Cash Flows                    2020                2018                Dollars            Percent

Net cash in investing activities           (1712)             (1011)             (701)               (31%)

 

Question 2(Ariel)

Comparative Balance Sheet

                          FY2020                FY2019               Increase/Decrease            Percentage

Total Assets      323888000        338516000        -14628000                           -4%

Comparative Income Statement

                         FY2020               FY2019               Increase/Decrease              Percentage

Net Sales         274515000        260174000        14341000                             6%

Comparative Statement of Cashflows

                         FY2020                 FY2019             Increase/Decrease            Percentage

Net Income       57411000          55256000          2155000                            4%

Accounts Rec.   6917000            245000              6672000                             2723%

When we look at horizontal analysis vs vertical analysis the main difference we see is that vertical analysis focuses on the relationship between the numbers listed in that specified reporting period. Another name for vertical analysis is common size financial statement analysis. For the balance sheet I selected to document the total assets which showed a 4% decrease. For the income statement I chose to document net sales.  Between FY2019 to FY2020 there was a 6% increase.  For the Statement of cashflows I chose to document net income as well as accounts receivable.  Both areas as well showed an increase of 4% and 2723%.  While many companies were negatively affected in 2020 due to the pandemic, Apple has shown that they were able to continue to stay afloat and benefitted from online sales as their doors were unfortunately forced to close like many other retailers.  However, we do see that on the balance sheet Apple unfortunately saw a decrease in total assets of 4%.  While it is not good to have seen a decrease in total assets, they are not hurting to the point where they should panic as a company.  My assessment still stands that Apple is a company worth investing in.  While they have been presented with obstacles, they have still managed to continue with the growth of the company and managed to release the iPhone 12 amid the pandemic.

 

 

Question 3(Dawn)

The company that I used for this assignment is Coca-Cola. Coca-Cola is a beverage company that markets nonalcoholic beverages such as bottled water, sports drinks, soft drinks, tea, coffee, and energy drinks. I will use the company's financial statements found on Mergent Online in our Ashford Library to prepare a comparative balance sheet, income statement, and statement of cash flows for the most recent two years and do a vertical analysis for my company. There are many methods that a business can use to compare its financial results to that of its competitors to see how successful that business is. A vertical analysis compares various financial statement items within a single period using common-size statements (Porter & Norton, 2018).

All the data below is retrieved from Mergent Online and represented in billions of US dollars for Coca-Cola. 

Common-Size Consolidated Income Statement

12 months ended

Dec 31, 2020

Sales 100.00%

Dec 31, 2019

Sales 100.00%

Dec 31, 2020

Gross profit 59.31%

Dec 31, 2019

Gross profit 60.77%

Dec 31, 2020

Operating income 27.25%

Dec 31, 2019

Operating income 27.06%

Dec 31, 2020

Net income from continuing operations 23.53%

Dec 31, 2019

Net income from continuing operations 24.11%

Dec 31, 2020

Consolidated net income 23.53%

Dec 31, 2019

Consolidated net income 24.11%

Dec 31, 2020

Net income attributable to shareowners of The Coca-Cola Company 23.47%

Dec 31, 2019

Net income attributable to shareowners of The Coca-Cola Company

23.94%

Common-size consolidated balance sheet

Dec 31, 2020

Cash, cash equivalents, and short-term investments 9.81%

Dec 31, 2019

Cash, cash equivalents, and short-term investments 9.20%

Dec 31, 2020

Current Assets 22.04%

Dec 31, 2019

Current Assets 23.63%

All the data below is retrieved from Mergent Online and represented in millions of US dollars for Pepsi. 

Common-Size Consolidated Income Statement

12 months ended

Dec 31, 2020

Sales 100.00%

Dec 31, 2019

Sales 100.00%

Dec 31, 2020

Gross profit 53.47%

Dec 31, 2019

Gross profit 53.79%

Dec 31, 2020

Operating income 15.08%

Dec 31, 2019

Operating income 15.68%

Dec 31, 2020

Net income from continuing operations 11.02%

Dec 31, 2019

Net income from continuing operations 12.27%

A common-size financial statement displays entries as a percentage of a common base figure rather than as absolute numerical figures. Common size statements let analysts compare companies of different sizes, in various industries, or across time in an apples-to-apples way (Hayes, 2020). All the percentages across the board were close to the same in 2020 as they were in 2019; there was just a slight decrease in percentages for the year 2020. This is because of the pandemic we are currently under and the reduction. When I looked over the current year, the percentages have all significantly increased. Current assets dropped in 2020, but they are at 26.75% currently this year on the quarterly reports. When compared to Pepsi, all the percentages were significantly lower. Both companies are strong financially, but you can tell that Coca-Cola stands way out in front, and they have the numbers to prove they are the king of pop. 

 

Question 4(Monique)

Common-size Comparative Balance Sheets

Change in Cash & Short-Term Assets (Part of Current Assets)

2020 & 2019

(All amounts in USD Millions)

	12/31/2020	12/31/2019
Cash & Short-Term Assets	Dollars	Percent	Dollars	Percent
UPS	6,316	31%	5,741	33%
FedEx	4,881	29%	2,319	17%

                       

Common-size Comparative Income Statements

Change in Gross Income (Part of Revenue)

	12/31/2020	12/31/2019
Gross Income	Dollars	Percent	Dollars	Percent
UPS	21,783	25%	16,093	21%
FedEx	13,344	19%	14,827	21%

 

Common-size Comparative Statement of Cash Flows

Change in Other Funds (Part of Operating Activities)

	12/31/2020	12/31/2019
Other Funds	Dollars	Percent	Dollars	Percent
UPS	6,216	59%	1,583	18%
FedEx	4,288	84%	4,211	75%

 

Above, the common-size statements for UPS includes vertical analysis for UPS from 2019 and 2020, as well as its biggest competitor in FedEx for the same years.   The convenience of the statements allows through standardization of the statements (Porter & Norton, 2018).  Through such standardization, the common-size statements also allow for comparison of how UPS is managing specific points of financial statements between years (or in FedEx’s case, quarterly as well) and with competition.  The analysis brings color to the specific financial and performance changes over time.

For UPS and Fedex, the companies’ cash and short-term assets is fraction of its current assets not exceeding 35%.  FedEx’s cash was 29% of total assets in 2020, and this was a 12% decrease from its positioning in 2019.  Meanwhile UPS was at 33% in 2019 and decreased to 31% in 2020, which would give indication that despite a global pandemic, Fedex saw a cash and short-term asset increase while UPS saw the cash value from current assets slim down.  Overall, UPS saw a higher dollar amount of cash and short-term assets than FedEx, with the percentage of current assets show that overall UPS has more current assets to work with.