1. Suppose that a vertical analysis of the income statement shows an item to be 18 percent of net sales. How would this information be used in order to make it meaningful? With what would it be compared?
2. In 2016, the cost of goods sold was 66 percent of net sales. For 2015, the same item was 63 percent, and for 2014 it was 60 percent. What recommendations would you make about items or activities that should be investigated further?
3. In deciding whether an increase in accounts receivable during the current year is desirable or undesirable, what factors should management consider?
4. Management is concerned that over a three-year period a company's balance sheets show that the total stockholders' equity has changed from 56 percent to 51 percent to 43 percent of total equities. What factors might explain this trend?
5. A company's income statements reveal that its net income after taxes has been 4.3 percent of net sales for each of the past three years. During that time, the industry average has been about 7 percent. What types of questions would management want answered in seeking an explanation for this difference?
6. A company's net sales increased by 35 percent from one year to the next year. During that period, selling expenses increased by 41 percent. Is this desirable? Explain.