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Toledo Toy, a manufacturer of infants’ blocks, presented the following data in its last annual report....

Toledo Toy, a manufacturer of infants’ blocks, presented the following data in its last annual report. This trend analysis begins with the year of formation, 2003.

2006

2005

2004

2003

Sales

$61,000

$41,000

$25,000

$13,000

Cost of Sales

$41,300

$28,175

$17,201

$9,000

Net Income

$9,919

$6,412

$3,850

$2,000

Cases of Blocks Shipped

33,126

22,681

13,900

7,400

Required:

a.

Using 2003 as the base year, perform a horizontal, common-size analysis.

b.

Comment on the results of the horizontal analysis.

Solutions

Expert Solution

a.

Horizontal Analysis
2004 2005 2006
Sales 92.31% 215.38% 369.23%
Cost of Sales 91.12% 213.06% 358.89%
Net Income 92.50% 220.60% 395.95%
Cases of Blocks Shipped 87.84% 206.50% 347.65%

Formulae attached for calculation understanding

b. The horizontal analysis shows a steady increase in the Sales, cost of sales and Net Income of the business. The Increase in net income has been more or less proprtionate to the increase in Sales indicating that the business has maintained its cost to sales ratio. The Net income has increased from 92.5% in 2004 to 220.6% next year and the increase in NI has been 396% in 2006 as compared to 2003. It can also be observed that the increase in number of cases shipped has been increasing in almost the same proportion.

jeff jeffy answered 2 years ago
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