Question

The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Required: 1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. 2-b. Excluding income tax and other operating costs, did Insignia earn more profit per dollar of revenue in 2015 compared to 2014?

Answer 1

Answer and Explanation:

As per the data given in the question,

1)

                                   Insignia Corporation

                                     Income Statements

                              For the year ended Dec-31

                                                                       Change in

Particulars        2015           2014             Dollars                       %

Revenues          126             266              -140                           -52.6%

Cost of crude oil and products 63 153     -90                          -58.8%

Other operating costs 61      55                  6                              10.9%

Income before income tax expense 2 58 -56                            -96.6%

Income tax expense 0           30                 -30                             -100.0%

Net income       2                 28                      -26                            -92.9%

2-a)

                                                Insignia Corporation

                                               Income Statements

                                              For the year ended Dec-31

                                         2015                                  2014

Revenues              126          100.0%                     266          100.0%

Cost of crude oil and products 63 50.0%           15.3           57.5%

Other operating costs 61        49.4%                     55             20.7%

Income before income tax expense 2 1.6%        58               21.8%

Income tax expense 0           0.0%                      30                  11.3%

Net income            2              1.6%                        28                 10.5%

2-b)

No, Insignia earned $0.575 per dollar of revenue in 2015 but it earned only $0.500 per dollar of revenue in 2015.