Prepare the following analysis using Ford’s interactive financial statements (ht
ID: 2445368 • Letter: P
Question
Prepare the following analysis using Ford’s interactive financial statements (http://www.sec.gov/cgi-bin/viewer?action=view&cik=37996&accession_number=0000037996-14-000010&xbrl_type=v#) for end of the Fiscal year 2013, 2012, and 2011. Submit an Excel worksheet that develops the following: (((PLEASE SUBMIT THE EXCEL SHEET)))
Prepare horizontal analysis by developing a comparative balance sheet for the current and previous year of the balance sheet included in the 10-K.
Prepare vertical analysis by developing a comparative income statement for the current and previous year of the income statement included in the 10-K.
Explanation / Answer
Horizontal analysis is the comparison of historical financial information over a series of reporting periods, or of the ratios derived from this financial information. The intent is to see if any numbers are unusually high or low in comparison to the information for bracketing periods, which may then trigger a detailed investigation of the reason for the difference. The analysis is most commonly a simple grouping of information that is sorted by period, but the numbers in each succeeding period can also be expressed as a percentage of the amount in the baseline year, with the baseline amount being listed as 100%.
Horizontal analysis of the balance sheet is usually in a two-year format, with a variance showing the difference between the two years for each line item. An alternative format is to add as many years as will fit on the page, without showing a variance, so that you can see general changes by account over multiple years. A less-used format is to include a vertical analysis of each year in the report, so that each year shows each line item as a percentage of the total assets in that year.
Vertical analysis is the proportional analysis of a financial statement, where each line item on a financial statement is listed as a percentage of another item. Typically, this means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a percentage of total assets.
The most common use of vertical analysis in an income statement is to show the various expense line items as a percentage of sales, though it can also be used to show the percentage of different revenue line items that make up total sales.