Question

Financial statements for Steele Inc. follow.

Steele Inc.
Consolidated Income Statements
(in thousands except per share amounts)
		2019		2018		2017
Net sales		$7,245,088		$6,944,296		$6,149,218
Cost of goods sold		(5,286,253)		(4,953,556)		(4,355,675)
Gross margin		$1,958,835		$1,990,740		$1,793,543
General and administrative expenses		(1,259,896)		(1,202,042)		(1,080,843)
Special and nonrecurring items		2,617		0		0
Operating income		$701,556		$788,698		$712,700
Interest expense		(63,685)		(62,398)		(63,927)
Other income		7,308		10,080		11,529
Gain on sale of investments		0		9,117		0
Income before income taxes		$645,179		$745,497		$660,302
Provision for income taxes		(254,000)		(290,000)		(257,000)
Net income		$391,179		$455,497		$403,302

Steele Inc.
Consolidated Balance Sheets
(in thousands)
ASSETS		Dec. 31, 2019		Dec. 31, 2018
Current assets:
Cash and equivalents		$320,558		$41,235
Accounts receivable		1,056,911		837,377
Inventories		733,700		803,707
Other		109,456		101,811
Total current assets		$2,220,625		$1,784,130
Property and equipment, net		1,666,588		1,813,948
Other assets		247,892		248,372
Total assets		$4,135,105		$3,846,450
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$250,363		$309,092
Accrued expenses		347,892		274,220
Other current liabilities		15,700		0
Income taxes		93,489		137,466
Total current liabilities		$707,444		$720,778
Long-term debt		650,000		541,639
Deferred income taxes		275,101		274,844
Other long-term liabilities		61,267		41,572
Total liabilities		1,693,812		1,578,833
Stockholders’ equity:
Preferred stock		$100,000		$100,000
Common stock		89,727		89,727
Additional paid-in capital—common stock		128,906		127,776
Retained earnings		2,397,112		2,136,794
		$2,715,745		$2,454,297
Less: Treasury stock, at cost		(274,452)		(186,680)
Total stockholders’ equity		$2,441,293		$2,267,617
Total liabilities and stockholders’ equity		$4,135,105		$3,846,450

Required:

1. Prepare a common size income statement for Steele to be used in vertical analysis. Enter your answers in percentage terms, rounded to two decimal places, and do not include the "%" sign with your answer. For example, "100.00" or "28.72". If an amount is zero, enter "0". For those boxes in which underlying dollar amount is shown as negative, use a minus sign. You do not need to include the actual dollar amounts shown above.

Steele Inc.
Consolidated Income Statements
	2019	2018	2017
Net sales	%	%	%
Cost of goods sold	%	%	%
Gross margin	%	%	%
General and administrative expenses	%	%	%
Special and nonrecurring items	%	%	%
Operating income	%	%	%
Interest expense	%	%	%
Other income	%	%	%
Gain on sale of investments	%	%	%
Income before income taxes	%	%	%
Provision for income taxes	%	%	%
Net income	%	%	%

Feedback

Prepare a common size balance sheet for Steele to be used in vertical analysis. Enter your answers in percentage terms, rounded to two decimal places, and do not include the "%" sign with your answer. For example, "100.00" or "28.72". If an amount is zero, enter "0". You do not need to include the actual dollar amounts shown above.

Steele Inc.
Component Percentage Balance Sheets
	Dec. 31, 2019	Dec. 31, 2018
Current assets:
Cash and equivalents	%	%
Accounts receivable	%	%
Inventories	%	%
Other	%	%
Total current assets	%	%
Property and equipment, net	%	%
Other assets	%	%
Total assets	%	%
Current liabilities:
Accounts payable	%	%
Accrued expenses	%	%
Other current liabilities	%	%
Income taxes	%	%
Total current liabilities	%	%
Long-term debt	%	%
Deferred income taxes	%	%
Other long-term liabilities	%	%
Total liabilities	%	%
Stockholders' equity:
Preferred stock	%	%
Common stock	%	%
Additional paid-in capital - common stock	%	%
Retained earnings	%	%
	%	%
Less: Treasury stock, at cost	%	%
Total stockholders' equity	%	%
Total liabilities and stockholders' equity	%	%

Answer 1

Under Vertical analysis, all numbers are expressed as a % of Net Sales in Income Statement and a % of total assets in Balance Sheet of the corresponding year
Steele Inc.
Consolidated Income Statements
	2019	2018	2017
Net sales	100.00%	100.00%	100.00%
Cost of goods sold	-72.96%	-71.33%	-70.83%
Gross margin	27.04%	28.67%	29.17%
General and administrative expenses	-17.39%	-17.31%	-17.58%
Special and nonrecurring items	0.04%	0.00%	0.00%
Operating income	9.68%	11.36%	11.59%
Interest expense	-0.88%	-0.90%	-1.04%
Other income	0.10%	0.15%	0.19%
Gain on sale of investments	0.00%	0.13%	0.00%
Income before income taxes	8.91%	10.74%	10.74%
Provision for income taxes	-3.51%	-4.18%	-4.18%
Net income	5.40%	6.56%	6.56%
Steele Inc.
Component Percentage Balance Sheets
	Dec. 31, 2019	Dec. 31, 2018
Current assets:
Cash and equivalents	7.75%	1.07%
Accounts receivable	25.56%	21.77%
Inventories	17.74%	20.89%
Other	2.65%	2.65%
Total current assets	53.70%	46.38%
Property and equipment, net	40.30%	47.16%
Other assets	5.99%	6.46%
Total assets	100.00%	100.00%
Current liabilities:
Accounts payable	6.05%	8.04%
Accrued expenses	8.41%	7.13%
Other current liabilities	0.38%	0.00%
Income taxes	2.26%	3.57%
Total current liabilities	17.11%	18.74%
Long-term debt	15.72%	14.08%
Deferred income taxes	6.65%	7.15%
Other long-term liabilities	1.48%	1.08%
Total liabilities	40.96%	41.05%
Stockholders' equity:
Preferred stock	2.42%	2.60%
Common stock	2.17%	2.33%
Additional paid-in capital - common stock	3.12%	3.32%
Retained earnings	57.97%	55.55%
	65.68%	63.81%
Less: Treasury stock, at cost	-6.64%	-4.85%
Total stockholders' equity	59.04%	58.95%
Total liabilities and stockholders' equity	100.00%	100.00%