Kepler Company
Comparative Balance Sheet
	This Year	Last Year
Assets
Current assets:
Cash	$50,000	$100,000
Accounts receivable, net	300,000	150,000
Inventory	600,000	400,000
Prepaid expenses	25,000	30,000
Total current assets	$975,000	$680,000
Property and equipment, net	125,000	150,000
Total assets	$1,100,000	$830,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$400,000	$290,000
Short-term notes payable	200,000	60,000
Total current liabilities	$600,000	$350,000
Long-term bonds payable, 12%	100,000	150,000
Total liabilities	$700,000	$500,000
Stockholders' equity:
Common stock (100,000 shares)	$200,000	$200,000
Retained earnings	200,000	130,000
Total liabilities and stockholders' equity	$1,100,000	$830,000
* for the current and last year, the market price per share of common stock is $2.98
** for last year, assets and equity were the same at the beginning and end of the year
Kepler Company
Comparative Income Statements
	This Year	Last Year
Sales	$950,000	$900,000
Less: Cost of goods sold	500,000	490,000
Gross margin	$450,000	$410,000
Less: Selling and administrative expenses	275,000	260,000
Operating income	$175,000	$150,000
Less: Interest expense	12,000	18,000
Income before taxes	$163,000	$132,000
Less: Income taxes	65,200	52,800
Net income	$97,800	$79,200
Less: Dividends	27,800	19,200
Net income, retained	$70,000	$60,000

Suppose you are advising on the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, you have been given the company's financial statements for the two most recent years, which are shown in this Google spreadsheetLinks to an external site.

Complete the following financial statements analysis: Note: Round all percentages to one decimal place.

Conduct a horizontal analysis with the following: Compute the percentage change for each item in the balance sheet and income statement. Describe any significant trends.

Conduct a vertical analysis with the following: Express each item in the asset section of the balance sheet as a percentage of total assets for each year. Express each item in the liabilities and equity section of the balance sheet as a percentage of total liabilities and equity for each year. Express each item in the income statement as a percentage of sales for each year. Discuss any significant findings.

Identify which approach horizontal or vertical you believe provides the best analysis related to whether or not the purchase should occur. Defend your answer.