Vertical and Horizontal Analysis of the Income Statement
Denny’s CPA School provided the following vertical analysis of its income statements for 1999 and 2000:
|
Percentage of revenue |
||
|
1999 |
2000 |
|
|
Revenues |
100% |
100% |
|
Salaries expense |
40 |
45 |
|
Rentals expense |
20 |
25 |
|
Books and supplies |
10 |
10 |
|
Advertising |
10 |
15 |
|
Operating income |
20 |
5 |
|
Income tax |
8 |
2 |
|
Net income |
12 |
3 |
In addition, Denny’s tuition revenues were $500,000 in 1999 and $400,000 in 2000.
Required
a. Based on the above information, prepare the firm’s income statements for 1999 and 2000.
b. Provide a horizontal analysis of the changes in each item in the income statement.
c. Based on your analysis, comment about the expected future performance of Denny’s CPA School.