Prepare horizontal and vertical analysis. (LO 2)

Given the following income statements:

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

b. Using 2007 as the base year, prepare a horizontal analysis for sales and cost of goods sold. What information does this analysis give you?

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Year ended December 31, (in thousands) 2009 2008 2007 Net sales Cost of goods sold Gross profit $5,003,837 $4,934,430 $4,881,103 2,755,323 2,804,459 2,784,392 2,248,514 2,129,971 2,096,711 Selling, general, and administrative expenses 1,673,449 1,598,333 1,573,510 Operating income 575,065 531,638 523,201 Interest expense 61,168 71,971 80,837 Interest and net investment expense (income) (5,761) (6,482) (8,278) Other expense-net Income before income taxes Income taxes Net income 29,540 26,046 23,365 490,118 440,103 427,277 186,258 167,239 166,663 $ 303,860 $ 272,864 $ 260,614