Interpreting Financial Statements: Horizontal Analysis
Consider the following horizontal analysis of a firm’s income statement (assume that 1998 is the base year used for comparison, when all items equal 100%):
|
2000 |
1999 |
|
|
Net revenues |
||
|
Product sales |
116.4% |
118.2% |
|
Product support and enhancement |
124.2 |
177.9 |
|
Total net revenue |
119.3 |
134.9 |
|
Operating expenses |
||
|
Cost of goods sold |
102.8 |
40.2 |
|
Sales and marketing |
120.7 |
172.1 |
|
Research, development and support |
91.1 |
181.8 |
|
General and administrative |
97.9 |
161.3 |
|
Total operating expenses |
103.5 |
132.2 |
|
Income (loss) from operations |
114.3 |
101.5 |
Required
a. Evaluate the firm’s performance.
b. In which year was it more successful? Why?
c. In which year did it control costs most effectively? Why?
d. In which year did the market respond best to the firm’s products and services? Why?
e. In which area of expenses should management concentrate the most attention? Why?
f. Did this firm have a positive or a negative income from operations in 1999? Why? In 2000? Why?