Financial Analysis of Sanborn Corporation

Horizontal and Vertical Analysis
Sanborn Corporation

‘s condensed comparative income statements for 20×8 and 20×7 appear below. The corporation’s condensed comparative balance sheets for 20×8 and 20×7 appear on the next page.
Sanborn CorporationComparative Income Statements

For the Years Ended December 31, 20×8 and 20×7

(in thousands of dollars)

20×8 20×7

Net sales
$3,276,800 $3,146,400

Cost of goods sold
2,088,800 2,008,400

Gross margin
$1,188,000 $1,138,000

Operating expenses

Selling expenses
$ 476,800 $ 518,000

Administrative expenses
447,200 423,200

Total operating expenses
$ 924,000 $ 941,200

Income from operations
$ 264,000 $ 196,800

Interest expense
65,600 39,200

Income before income taxes
$ 198,400 $ 157,600

InNet income $ 136,000 $ 100,800

Earnings per share $3.40 $2.52
Sanborn CorporationComparative Balance Sheets

December 31, 20×8 and 20x720x8 20x7Assets

Cash
$ 81,200 $ 40,800

Accounts receivable (net)
235,600 229,200

Inventory
574,800 594,800

Property, plant, and

equipment (net) 750,000 720,000

Total assets
$1,641,600 $1,584,800 

Liabilities and Stockholders’ Equity

Accounts payable
$ 267,600 $ 477,200

Notes payable (short-term)
200,000 400,000

Bonds payable
400,000
,
Common stock, $10 par value
400,000 400,000

Retained earnings
374,000 307,600

Total liabilities and

stockholders’ equity $1,641,600 $1,584,800
 
1. Prepare schedules showing the amount and percentage changes from 20×7 to 20×8 for the comparative income statements and the balance sheets. You may use the forms below. (40 points)
Sanborn CorporationComparative Income StatementsFor the Years Ended December 31, 20×8 and 20×7(in thousands of dollars)20×8 20×7 Increase or Decrease

Amount Percentage

Net sales $3,276,800 $3,146,400Cost of goods sold 2,088,800 2,008,400Gross margin $1,188,000 $1,138,000Operating expensesSelling expenses $ 476,800 $ 518,000Administrative expenses 447,200 423,200Total operating expenses $ 924,000 $ 941,200Income from operations $ 264,000 $ 196,800Interest expense 65,600 39,200Income before income taxes $ 198,400 $ 157,600Income taxes expense
62,400 56,800
Net income $ 136,000 $ 100,800Earnings per share $3.40 $2.52 
Sanborn CorporationComparative Balance SheetsDecember 31, 20×8 and 20x720x8 20×7 Increase or DecreaseAmount PercentageAssetsCash $ 81,200 $ 40,800Accounts receivable (net) 235,600 229,200Inventory 574,800 594,800Property, plant, andequipment (net) 750,000 720,000Total assets $1,641,600 $1,584,800 Liabilities and Stockholders’ EquityAccounts payable $ 267,600 $ 477,200Notes payable (short-term) 200,000 400,000Bonds payable 400,000Common stock, $10 par value 400,000 400,000Retained earnings 374,000 307,600Total liabilities andstockholders’ equity $1,641,600 $1,584,8002. Using the forms below, prepare common-size income statements and balance sheets for 20×7 and 20×8 (40 points)
Sanborn CorporationCommon-Size Income Statements
For the Years Ended December 31, 20×8 and 20x720x8 20x7Net salesCost of goods soldGross marginOperating expensesSelling expensesAdministrative expensesTotal operating expensesIncome from operationsInterest expenseIncome before income taxesIncome taxes expenseNet income 
Sanborn CorporationCommon-Size Balance Sheets
December 31, 20×8 and 20x720x8 20x7AssetsCashAccounts receivable (net)InventoryProperty, plant, and equipment (net)
Total assetsLiabilities and Stockholders’ EquityAccounts payableNotes payable (short-term)Bonds payableCommon stock, $10 par valueRetained earningsTotal liabilities and stockholders’ equity 
3. Comment on the results in requirements 1 and 2 by indentifying favorable and unfavorable changes in the components and composition of the statements. (30 points)