Perform horizontal and vertical analysis. (LO 2)

Here are the income statements from a firm's recent annual report.

\section*{Required}

a. For each of the years shown, perform a vertical analysis, using sales as the base. Write a paragraph explaining what the analysis shows.

b. Using 2006 as the base year, perform a horizontal analysis for net revenue and cost of sales. What information does this analysis give you?

Transcribed Image Text:

Year ended December 31, (in millions) 2008 2007 2006 Net revenue $26,971 $25,112 $23,512 Cost of sales 12,379 11,497 10,750 Selling, general, and administrative expenses 9,460 8,958 8,574 Amortization of intangible assets 145 138 165 Other expenses 204 224 356 Operating profit 4,783 4,295 3,667 Income from investments 323 280 160 Interest expense (163) (178) (219) Interest income 51 36 67 Income before income taxes 4,994 4,433 3,675 Income taxes Net income 1,424 1,433 1,244 $ 3,570 $ 3,000 $ 2,431