Assignment Two

1. The management of XYZ Company provides you with comparative balance sheets
of the years ended December 31, 2012 and 2011. Management asks you to prepare
a horizontal analysis on the information. Pdf solution

As indicated in table above sales increased by 8.3% while net income decreased by
21.9%. You identified that there were increases in both cost of goods sold (14.3%) and
operating expenses (2.1%). These increased costs more than offset the increase in sales,
yielding an overall decrease in net income. You already identified the Couse of the
problem. Therefore, what are the possible actions should be taken to eliminate the
reduction of the net income?
Answer
This suggests that the company is not passing the increases in costs of its products on to
its customers. As a result, cost of goods sold as a percentage of sales has increased and
gross margin has decreased. This change has been offset somewhat by reduction in
administrative expenses as a percentage of sales. Note that administrative expenses
decreased from 10.3% to only 8.9% of sales over the two years. However, this decrease
was not enough to completely offset the increased cost of goods sold, so the company’s
net income decreased as a percentage of sales this year.
Additional as a manager I will take the following action to eliminate the reduction of the
net income; reduce operating expenses by outsourcing certain divisions of the business,
allowing employees to work from home, a reduction in starting salaries, or automating
parts of the business. Operating expenses included in running a business are rent, utilities,
wages, office supplies, and business travel. As a general rule, an increase in any type of
business expense lowers profit. Adjust your pricing, Cut down on expenses, Reduce
interest payments, Look for new opportunities, Learn to fail quickly, Work smart, Utilize
the power of a mentor and Focus your marketing efforts.
2. Assume you are a manager of XY Company, while you conduct a vertical analysis
it is identified that 85% of the company expenses are incurred for salary. This
intern highly affected the profitability of the organization. As a manager what are
the possible remedial actions that you suppose to take in order to mitigate this
drawbacks? Answer
As a manager I suggest or take possible remedial action to sustain the organization and
raise the profitability of the company however a company net profit may decrease
naturally if the company loses revenues or incurs additional expenses, it’s obvious a
company may lose revenue if its product or services become obsolete but 85% paying for
salary from companies it shows in normality of the company therefore I will take
corrective action on the following two points; reduce operating expense; it includes
asking for different bids from vendors, cancel un used services, identify and reduce waste
materials and automate tasks, and reduce cost of goods sold its also substitute lower cost
material if possible negotiating about the issue with workers or employees about the
situation and reducing their salary after agreed on the topic those are interested to be
retired and reduce employees by paying compensation those are highly paid and then
give more additional responsibility for those are more experienced employees