Case Study: XYZ Manufacturing Company

$–$

$$Horizontal and Vertical Analysis

Background:

XYZ Manufacturing Company is a mid

$-$

sized firm that produces industrial equipment. The

company

$’$

s management is concerned about its financial performance over the last three

years and has asked its accounting department to perform both horizontal and vertical

analysis on its financial statements to assess the financial health and identify key trends.

Below are selected financial data from XYZ

$\text{'}$

s income statement for the last three years:

Item

$202120222023$

Sales Revenue $

$800$

$,$

$000$

$$$

$900$

$,$

$000$

$$$

$1$

$,$

$050$

$,$

$000$

Cost of Goods Sold

$($

COGS

$)$

$$$

$500$

$,$

$000$

$$$

$600$

$,$

$000$

$$$

$720$

$,$

$000$

Gross Profit $

$300$

$,$

$000$

$$$

$300$

$,$

$000$

$$$

$330$

$,$

$000$

Operating Expenses $

$100$

$,$

$000$

$$$

$120$

$,$

$000$

$$$

$150$

$,$

$000$

Operating Income $

$200$

$,$

$000$

$$$

$180$

$,$

$000$

$$$

$180$

$,$

$000$

Interest Expense $

$10$

$,$

$000$

$$$

$10$

$,$

$000$

$$$

$15$

$,$

$000$

Net Income $

$190$

$,$

$000$

$$$

$170$

$,$

$000$

$$$

$165$

$,$

$000$

Required:

$1$

$.$

$$What specific trend is most concerning in the horizontal analysis, and why

might it be problematic for XYZ Manufacturing Company in the long run?

$(5$

marks

$)$

$2$

$.$

$$Despite an increase in sales revenue, the net income has decreased. What does

this tell you about XYZ

$’$

s overall financial strategy and its ability to maintain

profitability?

$(5$

$$marks

$)$ 

$,$

$$conduct a vertical and horizantal analysis for this and show me how you solved it step by step