ANALYZING GROWTH Comparative financial statements for Initech Corporation follow:

Initech Corporation Consolidated Statements of Income Three Years Ended December 31,

(In millions except per share amounts) 2009 2008 2007 Net revenues $8,782 $5,844 $4,779 Cost of goods sold $3,252 $2,557 $2,316 Research and development 970 780 618 Marketing, general and administrative 1,168 1,017 765 Operating costs and expenses $5,390 $4,354 $3,699 Operating income $3,392 $1,490 $1,080 Interest expense (50) (54) (82)

Interest income and other, net 188 133 197 Income before taxes $3,530 $1,569 $1,195 Provision for taxes 1,235 502 376 Net income $2,295 $1,067 $ 819 Initech Corporation Consolidated Balance Sheets December 31, (In millions except per share amounts)
ASSETS 2009 2008 Current assets:
Cash and cash equivalents $ 1,659 $1,843 Short-term investments 1,477 993 Accounts and notes receivable, net of allowance for doubtful accounts of $22 ($26 in 2008) 1,448 1,069 Inventories 838 535 Deferred tax assets 310 205 Other current assets 70 46 Total current assets 5,802 4,691 Property, plant, and equipment:
Land and buildings 1,848 1,463 Machinery and equipment 4,148 2,874 Construction in progress 317 311 6,313 4,648 Less accumulated depreciation 2,317 1,832 Property, plant, and equipment, net 3,996 2,816 Long-term investments 1,416 496 Other assets 130 86 Total assets $11,344 $8,089 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Short-term debt $ 399 $ 202 Long-term debt redeemable within one year 98 110 Accounts payable 427 281 Deferred income on shipments to distributors 200 149 Accrued compensation and benefits 544 435 Other accrued liabilities 374 306 Income taxes payable 391 359 Total current liabilities $ 2,433 $1,842 Long-term debt 426 249 Deferred tax liabilities 297 180 Other long-term liabilities 688 373 Total liabilities $ 3,844 $2,644 Stockholders’ equity:
Preferred stock, $0.001 par value, 50 shares authorized; none issued — —
Common stock, $0.001 par value, 1,400 shares authorized; 1,000 issued and outstanding in 2009 and 2008 1 1 Capital in excess of par value 2,193 1,775 Retained earnings 5,306 3,669 Total stockholders’ equity 7,500 5,445 Total liabilities and stockholders’ equity $11,344 $8,089 Required:
. Prepare common size income statements to be used for both vertical and horizontal analysis for 20072009.
. Using the common size income statements for both vertical and horizontal analysis prepared in part (1), indicate why Initech’s profits increased more rapidly than sales for 2008 and 2009.
. Prepare common size balance sheets for vertical analysis for 2008 and 2009.
. Did the proportion of assets invested in the various classes of assets change significantly from 2008 to 2009?
. How has Initech financed its growth in assets?
. Did the income statement change as much between 2008 and 2009 as the balance sheet?
Case