Income Statement Data:
This year Last year
Revenue $150,000 $120,000
Cost of Goods Sold $90,000 $60,000
Operating Income $10,000 $5,000
Income Tax Expense $1,800 $500
Based on a horizontal analysis of the data, which statement correctly identifies the company's performance
this year?
To determine the company's performance this year based on a horizontal analysis of the data, we need to compare the figures from this year to the figures from last year.
Let's calculate the percentage change for each line item using the formula:
((This Year Amount - Last Year Amount) / Last Year Amount) * 100
Revenue:
((150,000 - 120,000) / 120,000) * 100 = 25%
Cost of Goods Sold:
((90,000 - 60,000) / 60,000) * 100 = 50%
Operating Income:
((10,000 - 5,000) / 5,000) * 100 = 100%
Income Tax Expense:
((1,800 - 500) / 500) * 100 = 260%
Now, let's analyze the results:
- Revenue increased by 25%. This indicates that the company generated more sales this year compared to last year.
- Cost of Goods Sold increased by 50%. This suggests that the cost of producing goods or services also increased.
- Operating Income increased by 100%. This demonstrates that the company's profitability improved significantly.
- Income Tax Expense increased by 260%. This implies that the company faced higher tax liabilities this year.
Based on the horizontal analysis, the statement that correctly identifies the company's performance this year is that the company experienced overall growth and improvement in profitability.