The following data were adapted from the financial statements of Kmart Corporation, prior
to its filing for bankruptcy:
In millions
For years ending January 31 2000 1999
Sales $ 37,028 $ 35,925
Cost of sales (expense) (29,658) (28,111)
Selling, general, and administrative expenses (7,415) (6,514)
Operating income (loss) $ (45) $ 1,300
a. Prepare a horizontal analysis for the income statement showing the amount and percent
of change in each of the following:
1. Sales
2. Cost of sales
3. Selling, general, and administrative expenses
4. Operating income (loss)
b. Comment on the results of your horizontal analysis in part (a).
Answer:
a.
KMART CORPORATION
Income Statement
For the Years Ended January 31, 2000 and 1999
(in millions)
Increase (Decrease)
2000 1999 Amount Percent
1. Sales..................................... $ 37,028 $ 35,925 $ 1,103 3.1%
2. Cost of sales........................ (29,658) (28,111) 1,547 5.5
3. Selling, general, and
administrative expenses..... (7,415) (6,514) 901 13.8
4. Operating income (loss)
before taxes......................... $ (45) $ 1,300 $(1,345) (103.5)
b. The horizontal analysis of Kmart Corporation reveals deteriorating operating
results from 1999 to 2000. While sales increased by $1,103 million, a 3.1% increase, cost of sales increased by $1,547 million, a 5.5% increase. Selling, general, and administrative expenses also increased by $901 million, a 13.8% increase. The end result was that operating income decreased by $1,345 million, over a 100% decrease, and created a $45 million loss in 2000. Little over a year later, Kmart filed for bankruptcy protection. It has now emerged from bankruptcy and was merged into Sears to form the company Sears Holding Corporation.
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