, Paccar may have sold to its financing unit new trucks. These trucks may have been leased to customers, thereby generating monthly leasehold revenues. If the leases were capital leases, then the asset costs (inventory) would have been transferred to the customer. Thus, from a sales perspective, Paccar may be in a win-win situation – it essentially sells its new trucks through leasehold arrangements bringing in monthly revenue, while not being responsible for the added costs of holding the inventory.Income StatementTable 2 is a composite chart that shows an operating cycle of two years: 1998 and 1999. These two years are analyzed in a vertical and horizontal analysis approach. During those two years, truck sales increased from $7.6 billion to $8.6 billion. Financial service revenue, although important for its business, accounts for only 4%, or $373 million, of total sales. Yet this business unit allows Paccar to weather the cyclical buying patterns of its worldwide customers. When the economy is sluggish, and the cost of money is relatively high, Paccar can provide its customers with leasing opportunities that bring in revenues where none would be possible on a strictly truck sales basis. Customers who could not afford to purchase a $150,000 truck might be able to afford to lease this same truck monthly. When the economy improves, then these same customers would be more likely to afford an outright truck purchase and suspend its leasing arrangements.Nevertheless, Paccar’s income statement shows only good and consistent growth. The lower portion of Table 2 shows a trend analysis that evidences this consistent growth. If we consider 1995 to be the base year, then one can see that between 1995 and 1999, net sales grew by 88 percent. Cost of sales by 56 percent, and gross profit by 170 percent. Thus we can see that gross profit increased at a faster rate than did costs of good sold. Evidently, Paccar managed to be...
