Dci Corp the Horizontal Analysis Focuses on

DCI Corp The horizontal analysis focuses on the year-over-year changes to the financial statements. At DCI, the company has seen disappointing performance the past three years. The company has seen its revenues grow over that time, but its net income has fallen. Net income growth was 7.6% in 2004 and 1.4% in 2005; net income fell 10.2% in 2004 and 34.2% in 2005. Of note, total expenses have continued to rise during the past three years, as has the cost of goods sold. The result has been flatlined gross profit and declining net income before taxes.

The vertical analysis reveals some of the changes to the company's net income position. The cost of goods sold was 51.3% of sales in 2003, 52.9% in 2004 and 55.2% in 2005. This increase contributes to the decline of profitability but is not the primary culprit. Selling, general and administrative expenses were 34.4% of sales in 2003, 34.4% of sales in 2004 and 35.4% of sales in 2005. Depreciation expense also increased. With all of the different expense categories increasing and some increasing faster than sales, the company's margins have been steadily eroded in the past three years.

In the past three years, DCI has seen volatility in its asset level, which increased 11.1% in 2004 but then shrunk 4.9% in 2005. During this period, there was also fluctuation in total liabilities, which increased 35.9% in 2004 but then fell 18.8% in 2005. During this period, there was also volatility in the shareholder's equity. This decreased in 2004 by 4.2% but then increased 7.1% in 2005. With specific respect to liquidity, the company took on significant short-term debt in 2004, with ST notes payable increasing 221%, but then falling back 75% the next year.

The company has steadily increased its level of LT notes payable as well. The spike in ST notes payable affected the current ratio in 2004 but this returned to its normal level in 2005. The vertical analysis shows that the firm is liquid with a current ratio of 3.11, compared with 2.12 last year. The cash ratio is 0.26, compared with 0.19 the year previous. The debt-to-equity ratio this year is 0.67, compared with 0.88 the year previous.

All signs point to the company improving its balance sheet in the past year, with a short-term event in 2004 having caused the balance sheet to deteriorate. The balance sheet shows that DCI expanded during 2004, adding plants and equipment, and debt to pay for that. This has also caused an expansion of the firm's cost structure, but has.