Part 1: Vertical Analysis
Income Statement:
1 Trend in Net Income for each period
(a) Description
Net income experienced a downward trend over two periods (’09 to ’10, ’11 to ’12), the figure decreased significantly from 6.91% to 3.82% and 12.76% to 10.04%. However, the net income shows an upward trend between ’10 and ’11 (from 3.82% to 12.76%).
(b) Reasons
Net income between ’09 and ’10 has decreased mainly caused by the growth of cost of goods sold (from 35.63% to 36.83% wholesale supply arrangements), the increased taxes related to operations (from 4.75% to 5.12%) and the decline of operating expenses and interest expense.
Net income has upward trend between ’10 and ’11 that reflected falling in three items mainly contributed by cost of goods sold (from36.83% to 34.48%), interest expense (from 3.12% to 1.45%) and other expense (from 0.81 to 0.77%). On the other hand, the operating expenses had a little increase (from 43.46% to 44.61%) that is another main factor contributes to an upward trend.
There is a downward trend from ’11 to ’12. The main reason is because of the increase in both operating expense (from 44.61% to 46.85%) and cost of goods of sold (from 34.48% to 36.75%).

2 Trend in individual items for each period
Cost of Goods Sold
(a) Description
During the period between ’09 and ’10, the percentage of cost of goods sold rose slightly, taking up from 35.63% to 36.83%. This was almost the same as the trend in the period between ’11 and ’12. Nevertheless, the cost of goods sold in ’11 has decreased as a percentage of sales to 34.48%, from 36.83% in ’10.
(b) Reasons
The reasons may cause the increase of COGS in a row from ’09 to ’10 and ’11 to ’12: The cost of raw materials used to manufacture products and service increase.
The reason for increase in the percentage Cost of Goods Sold from 09 to 10 is due to adverse product mix outcome with improved equipment sales but reduced apparel sales, and necessary promotional pricing to maximise sales (annual report 2010 p 8), and from 11 to 12 is due to the introduction of the new loyalty incentive to enhance the value of Summit Club membership (annual report 2012 p 9)
In the period ’10 to ’11, the strong A$ and NZ$ exchange rate assisted partially to offset supplier cost increases, and product mix lead to lowering the cost of raw material and caused the cost of goods sold to decrease. (annual report 2011 p 6)

Operating Expenses
(a) Description
There is a decline in the trend of operating expenses from 44.43% in ’09 to 43.46% in’10. However, the figures show a rising trend starting from ’10 to ’12 in a row (from 43.46%, 44.61% to 46.85%, respectively).
(b) Reasons
The trend of operating expenses between ’09 and ’10 is because the company reduced the costs related to running products or businesses, such as costs in administration, marketing and utilities etc. (Income Statement 2009 &2010).
For the trend of period ’10,’11 and ’12, new opened stores increased employee expenses and cost of store development, which means Kathmandu Ltd had to hire more staff and spend more money on shipment, advertising and package. So that caused the operating expenses to increase.
Interest Expenses
(a) Description
The percentage of interest expenses dropped considerably between ’09 and ’10 from 7.98% to 3.12%, which was the similar with that the trend of interest expenses between ’10 and ’11 (from 3.12% to 1.45%). Then, during the period from ’11 to ’12, there was a slight decline in percentage of interest expenses, the percentage of which is 1.45% and 1.23% respectively.
(b) Reasons
There was a downward trend from '09 to '12. This decrease is attributed to the repayment of long-term debt which decreased by 70.5% from NZ$182 million in '09 to NZ$54 million in 2012.

Other Income/(Expense)
(a) Description
The percentage of other income (expense) increased from 0.29% in ’09 to 0.81% in ’10. After that, the figure dropped over next two periods, from 0.81%