ng Principles II Chapter 17 Financial Statement Analysis Sample Work Comparative financial statements present the same company's financial statements for one or two successive periods in side-by-side columns. The calculation of dollar changes or percentage changes in the statement items or totals is horizontal analysis. Horizontal analysis is called horizontal because we look at one account at a time across time. We can perform this type of analysis on the balance sheet or the income statement. This analysis detects changes in a company's performance and highlights trends. Horizontal analysis consists of 2 things: Dollar amount of change (calculated as Current Year amount - Previous Year amount) Percentage of change (calculated as Dollar amount of change / previous year amount) 1. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for 2017 when compared with 2016. Round to the nearest tenth percent. Be sure to show decreases in parentheses or with a minus sign. Increase (Decrease) 2017 2016 Amount Percent Net Sales $15,900 $16,200 The change is: favorable / unfavorable Cost of goods sold 6,900 7,800 Gross profit 9,000 8,400 Operating expenses 3,600 3,850 Operating income $5,400 $4,550 favorable/unfavorable favorable unfavorable favorable / unfavorable favorable/unfavorable Trend percentages, also referred to as index numbers, help you to compare financial information over time to a base year or period. You can calculate trend percentages by: Selecting a base year or period. Assigning a weight of 100% to the amounts appearing on the base-year financial statements. Expressing the corresponding amounts on the other years' financial statements as a percentage of base-year or period amounts. Compute the percentages by Analysis year amount / base year amount and then multiplying the result by 100 to get a percentage. 2. Prepare a trend percentage analysis of the following sales and expense data using 2015 as the base year. 2018 2017 2016 2015 Comment on the trend anal Net Sales 182,795 170,910 156,508 108,249 Cost of goods sold 112,258 106,606 87,846 64,431 Operating expenses 18,034 15,305 13,421 10,028 2018 2017 2016 2015 Net Sales Cost of goods sold Operating expenses