Chapter 12
Using Accounting Information
361
income has doubled since 2015 which is a good sign of profitability. However, if the bank grants a
loan, Star Hotel will be required to incur an interest expense which would reduce the profitability
of the company.The bank decides to look at other trends in the company.
Figure 12.10 lists the key figures from the income statement for the previous three years as dollars,
percentage of, as well as percentage changed for the base year of 2014.
Star Hotel
Key Figures
For the Year Ended December 31, 2014 - 2016
2016
2015
2014
Total Revenue
$350,000
$250,000
$220,000
Cost of Goods Sold
50,000
30,000
25,000
Gross Profit
300,000
220,000
195,000
Total Expenses
280,000
210,000
187,500
Net Income
20,000
10,000
7,500
Star Hotel
Percentage of 2014 Base-Year
For the Year Ended December 31, 2014 - 2016
2016
2015
2014
Total Revenue
160%
114%
100%
Cost of Goods Sold
200%
120%
100%
Gross Profit
154%
113%
100%
Total Expenses
150%
112%
100%
Net Income
267%
133%
100%
Star Hotel
Percentage Changed with 2014 Base-Year
For the Year Ended December 31, 2014 - 2016
2016
2015
2014
Total Revenue
60%
14%
0%
Cost of Goods Sold
100%
20%
0%
Gross Profit
54%
13%
0%
Total Expenses
50%
12%
0%
Net Income
167%
33%
0%
_______________
Figure 12.10
Star Hotel’s sales have been increasing at a faster rate than its expenses, resulting in higher net
income. After seeing these trends, the bank decides that the company is likely to continue operating
profitably into the future.
Finally, the bank can also use vertical analysis on Star Hotel’s income statement by converting
everything to a percentage of total revenue for each year, as shown in Figure 12.11.
