Financial Statement Analysis Project Vertical Analysis Vertical analysis is an analysis of a financial statement that shows the relationship

of each item on the statement to a specific base amount that is the 100% figure. Vertical analysis takes the three major categories of accounts which are assets, liabilities, and equities are represented as a portion of the total to put it basically. One of the biggest advantages of the vertical analysis is to help determine a companys performance. The formula used to determine the vertical analysis is (financial statement item $/base amount $) X 100. The vertical analysis on the Consolidated Statements of Operations from Columbia Sportswear demonstrates that: in 2008 cost of goods sold was 56.9% in 2007 cost of goods sold was 57.2% in 2006 cost of goods sold was 58%

From 2006 to 2007 there was a decrease in Cost of Goods Sold as a percent of Net Sales from 58% to 57.2% with an increase in Net Sales of $68,367 is a good sign because the company was spending less money while making more. There was a larger decrease in Cost of Goods Sold as a percent of Net Sales from 2007 to 2008 but there was also a loss in Net Sales of $38,204. Therefore there should have been a decrease in from 2007 to 2008 Cost of Goods Sold since there were less Net Sales! If a companys Net Sales are decreasing they should not have an increase in Cost of Goods Sold in most cases. 2008 selling, general, and administrative expenses were 32.7% 2007 selling, general, and administrative expenses were 28.4% 2006 selling, general, and administrative expenses were 28.5%

In the two most recent years Columbia Sportswear has also seen an increase in selling, general, and administrative expenses. In 2007 the expenses were 28.4% and in 2008 the expenses were 32.7% this is not a good thing really because there was still a decrease in the Net Sales. If you look at the expenses from 2006 to 2007 there was a slight decrease but more importantly there was an increase of $68,367 in Net Sales. Looking at this vertical analysis it shows that the company overall managed their funds better in 2006, and 2007, than they did in 2008. This can be demonstrated by breaking down all the items on the Consolidated Statements of Operation, I just showed a couple to prove my point. By taking every item on the Income Statement and evaluating them relative to Net Sales gives us a really clear example of how the company as a whole is doing.

Horizontal analysis Horizontal analysis looks at the dollar amount and percentage changes in the financial statements. As our book states, it can sometimes be useful to know if individual amounts such as wage expenses, and accounts receivables have changed from the prior period but percentage change is often more helpful. A horizontal analysis takes the financial statements of a company and presents them sideby-side. The goal of horizontal analysis is to take the figures of the current period and compare them to the past periods. This can help a company reflect their performance and find out where there may be areas of improvement. Horizontal analysis places all the facts in an easy to understand format which makes it easier to see where a company can improve and where the company is being the most profitable. The formula for horizontal analysis percentage change is (dollar change/base period amount) X100. When looking at the Consolidated Statements of Operations using the horizontal analysis I saw that from 2007 to 2006 the percentage is 5.31% and from 2007 to 2008 the percentage is -2.90%. From this figure alone we can see that the company did better from 2006 to 2007 than it did from 2007 to 2008. Differences Vertical analysis reports each amount on a financial statement as a percentage of another item and horizontal analysis looks at amounts on the financial statements over the past years. The same analysis is done for each item on the statement and it allows us to see how each item has changed in relationship to the changes in other items. Another difference between vertical analysis and horizontal analysis is that in vertical analysis, the figures are not only compared to the past year, but they are also characterized as a percentage of the total cost.

Earnings per Share Basic earnings per share or EPS are based on outstanding common shares. Earnings per share reports the amount of net income for each share of the companys outstanding common stock. The way to get EPS is by dividing net income available to common stockholders by the number of common share outstanding during the year. For 2008 take the Net Income of $95,047 there are no dividends to subtract so then divide the Net Income by the number of shares of outstanding common stock which is 34,610. Then you have the Basic earnings per share of $2.75. We can do the same for 2007 and the basic

earnings per share are $4.00. Also for 2006 the basic earnings per share are $3.39. All the information we need to determine the EPS can be found on the Consolidated Statements of Operations. According to this statement Columbia Sportswears EPS has increase from 2006 to 2007 buy decrease from 2007 to 2008. In fact Columbia Sportswears EPS was the lowest in the most recent year (2008) than all three years we are examining. The EPS will vary from year to year because the Net Income varies from year to year. Also the number of outstanding share may change from year to year which would also make the EPS change. Because the Net Income is directly related to the EPS and the Net Sales most changes that happen on the Consolidated Statement of Operations will change the EPS. Liquidity Liquidity is used to describe how easily it is to convert an asset to cash. The most liquid asset, and what everything else is compared to, is cash. This is because it can always be used and is immediately available. In order to compute Columbia Sportswears liquidity using the working capital ratio the formula used is Current Assets Current Liabilities. Therefore using this ratio in 2008 the liquidity was $699,330 and in 2007 the liquidity was $719,133. Working capital measures the amount of current assets that are left over after selling the current liabilities. The current ratios formula is (Current Assets/Current Liabilities). Using this formula the liquidity for 2008 was 5.04 and in 2007 the liquidity was 5.32. By having a higher current ratio shows that the company has sufficient current assets to pay its current liabilities. The current ratio is the most widely used liquidity ratio. Now to determine the companys liquidity using the Quick ratio. The quick ratio shows whether the company could pay all its current liabilities if they came due imminently, prepaid expenses and inventory is not included because they are not available to pay current liabilities. The formula used for the quick ratio is (Cash + Short-term investments + Net current receivables)/ (Current liabilities). Using this information in 2008 the quick ratio is 3.19 and in 2007 the quick ratio is 3.45. After reviewing the data from all three liquidity ratios it is easy to see the company was more liquid in 2007 than they were in 2008. Each of the methods says some very important information to investors and the companys management. Also looking at the information from the liquidity ratios you can determine the liquidity of Columbia Sportswear has deteriorated from 2007 to 2008. In turn this leads to the deterioration of their probability over this time period.

Price/Earnings Ratio and Dividends Yield The price earnings (P/E) ratio shows how much investors are willing to pay per dollar of earnings. The reason investors purchase stock is to earn a return on it. Investors use both P/E and dividend ratio as a way to evaluate stock and determine if they would like to invest in that particular company. The formula to calculate P/E is (Market Price per Share/ Earnings per Share). Using this formula Columbia Sportswear has a P/E of 12.86 for 2008. This means that investors are willing to pay 12.86 per share of stock for Columbia Sportswear, by evaluating former years we could see if investors are willing to pay more or less than they were previously. The dividends yield ratio measures the percentage of a stocks market value that is returned annually as dividends. The dividend yield can be used to calculate the dividends on common stock, preferred stock, or both. The formula for dividend yield (Dividend per Share/ Market Price per Share). After using this formula to calculate the dividend yield for Columbia Sportswear investors can expect to receive about .02% of their investments in cash dividends. Most investors would not consider this a good return. With the industry average P/E being 12 times the earnings, Columbia Sportswear is not far off track, being just 1.00 higher than what the average investor is paying. With the average dividend yield being 1.7% Columbia Sportswear is a long way away since they are at .02% this really hurts them since there is such a huge difference. Investors will see this and see that the stock they have in Columbia Sportswear will earn significantly less dividends than the average stock.

Columbia Sportswear vs. Underarmour 2008: 2008 Net Sales: Cost of Sales: Gross Profit: Operating Expenses: Net Income: Earnings per Share: (Basic) Columbia Sportswear $1,317,835 $750,024 $567,811 $430,350 $95,047 $2.75 Underarmour $725,244 $370,296 $354,948 $278,023 $38,229 .79

Working Capital: Current Ratio:

$699,330 5.04

$263,313 6.78

After looking and comparing the data from both companies there are some pretty interesting details. Underarmour looks like a growing company; they have seen a consistent increase in net income over the last several years. In 2004 their net sales were $205,181 and in just four years they have increased to net sales of $725,244. This could leave investors to be unsure of the companys future and unsure if they Most of the investors would probably invest in Columbia Sportswear due to their earnings per share. The earnings per share are significantly more with Columbia Sportswear than they are for Underarmour. It is interesting that even though Underarmour has much lower net sales their gross profit is a better percentage than Columbia Sportswear. The higher current ratio of Underarmour indicates that they will have more assets to pay their current liabilities. Columbia Sportswear just has more to offer their investors than Underarmour does at this time.